SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
DYNAMIC ASSOCIATES, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
(X) Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies: Common Stock
2) Aggregate number of securities to which transaction
applies: 22,473,413 shares
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined): $0.11 per share (being the
average of the bid and ask price of the shares to be
received in the transaction as quoted on the OTCBB on May
12, 1999)
4) Proposed maximum aggregate value of transaction:
$2,472,075.40
5) Total fee paid: $494.42
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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DYNAMIC ASSOCIATES, INC.
6955 E. Caballo Drive,
Paradise Valley, Arizona
85253
June 18, 1999
Dear Shareholder:
You are cordially invited to attend the annual meeting of
shareholders of Dynamic Associates, Inc., which will be held on
June 28, 1999 at 11:00 a.m., Pacific Standard Time at 101
Convention Center Drive, Suite 1200, Las Vegas, Nevada 89109.
Details of the business to be conducted at the annual meeting are
given in the attached Notice of Annual Meeting of Shareholders and
Proxy Statement.
Whether or not you attend the annual meeting it is important that
your shares be represented and voted at the meeting. Therefore, I
urge you to sign, date, and promptly return the enclosed proxy in
the enclosed postage-paid envelope. If you decide to attend the
annual meeting and vote in person, you will of course have that
opportunity.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the
Company.
Sincerely,
/S/ Jan Wallace
Jan Wallace
President
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DYNAMIC ASSOCIATES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 28, 1999
To the Shareholders:
Notice is Hereby Given that the Annual Meeting of the holders of
shares of Common Stock of Dynamic Associates, Inc. (the "Common
Stock") will be held at 101 Convention Center Drive, Suite 1200,
Las Vegas, Nevada 89109 on June 28, 1999 at 11:00 a.m., Pacific
Standard Time, for the following purposes:
1. To elect directors.
2. To approve the Agreement and Plan of Merger, dated March 30,
1999, by and among Dynamic Associates, Inc., Advanced Clinical
Systems, Inc., ACS2, Inc. and Dynamic Acquisition Corp., a wholly-
owned subsidiary of the Company;
3. To amend the Company's 1997 Incentive Stock Option Plan and 1997
Non-Statutory Stock Option Plan to increase the maximum aggregate
number of shares which may be optioned under these Plans to
7,000,000 in conformity with the requirements of the Merger
Agreement; and
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on May 10,
1999 are entitled to notice of, and to vote at, this meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ Grace Sim
Grace Sim, Secretary
June 18, 1999
IMPORTANT
Whether or not you expect to attend in person, we urge you to sign,
date, and return the enclosed Proxy at your earliest convenience.
This will ensure the presence of a quorum at the meeting. PROMPTLY
SIGNING, DATING, AND RETURNING THE PROXY WILL SAVE THE COMPANY THE
EXPENSE AND EXTRA WORK OF ADDITIONAL SOLICITATION. An addressed
envelope for which no postage is required if mailed in the United
States is enclosed for that purpose. Sending in your Proxy will not
prevent you from voting your stock at the meeting if you desire to
do so, as your Proxy is revocable at your option.
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DYNAMIC ASSOCIATES, INC.
6955 E. Caballo Drive,
Paradise Valley, Arizona
85253
June 18, 1999
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD JUNE 28, 1999
This Proxy Statement, which was first mailed to shareholders on or
about June 18, 1999, is furnished in connection with the
solicitation of proxies by the Board of Directors of Dynamic
Associates, Inc. (the "Company"), to be voted at the annual meeting
of the shareholders of the Company (the "Annual Meeting"), which
will be held at 11:00 a.m. on June 28, 1999, at 101 Convention
Center Drive, Suite 1200, Las Vegas, Nevada 89109 for the purposes
set forth in the accompanying Notice of Annual Meeting of
Shareholders. Shareholders who execute proxies retain the right to
revoke them at any time prior to the exercise of the powers
conferred thereby, by delivering a signed statement to the
Secretary of the Company at or prior to the annual meeting or by
executing another proxy dated as of a later date. The cost of
solicitation of proxies is to be borne by the Company.
Shareholders of record at the close of business on May 10, 1999
will be entitled to vote at the meeting on the basis of one vote
for each share held. On May 10, 1999, there were 18,386,429 shares
of common stock outstanding, held of record by 559 shareholders.
The deadline for submittals of shareholder proposals for the next
regularly scheduled annual meeting will be not less than 120 days
prior to the release date of the proxy materials as received at the
Company's principal offices by that date. A shareholder proposal
submitted outside the processes of SEC Regulation Section 240.14a-8
will be considered untimely if received at the principal offices of
the Company on or after 45 days prior to the Company's release of
its proxy statement to shareholders.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY
STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR
ANY OTHER PERSON.
MEETING
PLACE, DATE AND TIME
The Annual Meeting will be held at 101 Convention Center Drive,
Suite 1200, Las Vegas, Nevada 89109, on June 28, 1999 at 11:00 a.m.
Pacific Standard Time.
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RECORD DATE; SOLICITATION OF PROXIES
The Board of Directors of the Company (the "Board") has fixed the
close of business on May 10, 1999 as the Record Date for the
determination of shareholders entitled to notice of and to vote at
the Annual Meeting. At the Record Date, there were 18,386,429
shares of Common Stock issued and outstanding and entitled to vote
at the Annual Meeting held by approximately 559 holders of record.
Holders of Common Stock are entitled to one vote at the Annual
Meeting for each share of Common Stock held of record at the Record
Date.
In addition to the solicitation of proxies by use of the mails,
proxies may also be solicited by the Company and its directors,
officers and employees (who will receive no additional compensation
therefor) by telephone, telegram, facsimile transmission or other
electronic communication, and/or by personal interview. The
Company will reimburse banks, brokerage houses, custodians and
other fiduciaries who hold shares of Common Stock in their name or
custody, or in the name of nominees for others, for their
out-of-pocket expenses incurred in forwarding copies of the proxy
materials to those persons for whom they hold such shares. The
Company will bear the costs of the Annual Meeting and of soliciting
proxies therefor, including the cost of printing and mailing this
Proxy Statement and related materials. Any questions or requests
for assistance regarding the Company's proxies and related
materials may be directed in writing to Grace Sim at 6955 E.
Caballo Drive, Paradise Valley, AZ 85253.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, holders of Common Stock of the Company will
be asked to elect directors, amend the Company's 1997 Incentive
Stock Option Plan and 1997 Non-Statutory Stock Option Plan to
increase the maximum aggregate number of shares which may be
optioned under these Plans, and approve a merger agreement between
Dynamic Acquisition Corporation, a newly formed, wholly owned
subsidiary of the Company and ACS2, Inc. ("ACS") whereby the
shareholders of ACS will become shareholders of the Company and the
operating subsidiaries of ACS will become wholly owned subsidiaries
of the Company ("Merger Agreement"). See "The Merger" Section
below for background and details of this transaction.
VOTE REQUIRED
Twenty Five Percent (25%) of the issued and outstanding shares of
Common Stock entitled to vote as of the Record Date, represented in
person or by proxy, is required for a quorum at the Annual Meeting.
The affirmative vote of a majority of those shares in favor of the
Merger Agreement and the proposed amendment to the Company's 1997
Incentive Stock Option Plan and 1997 Non-Statutory Stock Option
Plan will be necessary in order to approve the agreement and
amendment, and the nominees receiving the three highest number of
votes will be elected to the board of directors. Abstentions may
be specified and will be counted as present for the purpose of
determining the existence of a quorum.
Shares of Common Stock that are represented by properly executed
proxies, unless such proxies shall have previously been properly
revoked (as provided herein), will be voted in accordance with the
instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be
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voted FOR approval of the Merger Agreement,
FOR approval of the proposed amendment to
the Company's 1997 Incentive Stock Option Plan and 1997 Non-
Statutory Stock Option Plan, and FOR the nominees for the Board
named herein, and in the discretion of the persons named in the
proxy as proxy appointees, as to any other matter that may properly
come before the Annual Meeting (of which the Company is not
presently aware).
Under the rules of the NASD, although brokers who hold shares in a
street name have the authority to vote on certain items when they
have not received instructions from the beneficial owners, brokers
will not be entitled to vote on the approval of the Merger
Agreement absent specific instructions. Brokers who do not receive
instructions but who are present, in person or by proxy, at the
Annual Meeting will be counted as present for quorum purposes.
It is not expected that any matters other than those referred to in
this Proxy Statement will be brought before the Annual Meeting. If
other matters are properly presented, however, the persons named as
proxy appointees will vote in accordance with their best judgment
on such matters. The grant of a proxy also will confer
discretionary authority on the persons named as proxy appointees to
vote in accordance with their best judgment on matters incident to
the conduct of the Annual Meeting.
Any shareholder may revoke his, her or its proxy (other than an
irrevocable proxy coupled with an interest) at any time before it
is voted, by: (1) filing with the Corporate Secretary of the
Company an instrument revoking the proxy; (2) returning a duly
executed proxy bearing a later date; or (3) attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting
will not by itself constitute revocation of a proxy. There are no
dissenters rights or remedies for shareholders who do not agree
with the outcome of the vote on the issues to be brought at this
Annual Meeting.
SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND SHAREHOLDERS ARE
URGED TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING PREPAID ENVELOPE.
ELECTION OF DIRECTORS
Three directors are to be elected at the Annual Meeting, to hold
office for one year until the next annual meeting of shareholders
(or, if sooner, until the change in composition of the Board
contemplated under the Merger Agreement and further described
herein in the section entitled "Issuance of Common Stock and
Composition of the Board") and until their successors are elected
and qualified. It is intended that the accompanying proxy will be
voted in favor of the following persons to serve as directors
unless the shareholder indicates to the contrary on the proxy.
Management expects that each of the nominees will be available for
election, but if any of them is not a candidate at the time the
election occurs, it is intended that such proxy will be voted for
the election of another nominee to be designated by the Board of
Directors to fill any such vacancy.
NOMINEES
Jan Wallace, 43, is a Director, the President and the Chief
Operating Officer of the Company. Ms. Wallace has been employed by
the Company since April 1995, when she was elected to the Board
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of Directors and accepted the position of Chief Operating Officer.
Ms. Wallace was previously Vice President of Active Systems, Inc.
a Canadian Company. Prior to that she was President and Owner of
Mailhouse Plus, Ltd., an office equipment distribution company
which was sold to Ascom Company. She has also been in management
with Pitney Bowes-Canada and Bell Canada where she received its
highest award in Sales and Marketing. Ms. Wallace was educated at
Queens University in Kingston, Ontario and Carleton University,
Ottawa, Ontario in Political Science with a minor in Economics.
Ms. Wallace also sits on the board of directors of MW Medical,
Inc., a publicly held company.
Grace Sim, 38, has been Secretary-Treasurer of the Company since
October 10, 1997. Ms. Sim joined Dynamic in January 1997. Prior to
joining Dynamic, Ms. Sim owned an accounting consulting company in
Ottawa, Ontario, Canada. Ms. Sim received her Bachelor of
Mathematics with honors from the University of Waterloo in
Waterloo, Ontario. Ms. Sim also sits on the board of directors of
MW Medical, Inc., a publicly held company.
Elliot Smith, 65, is a Director of the Company. Mr. Smith began
his career with Prudential Securities in 1954 as a Registered
Representative in its Syracuse, New York, office. By 1966, Mr.
Smith was appointed Resident Manager of the firm's largest office
in New York City. He was named Manager, Marketing & Sales Division
at the Home Office in New York City in 1969, and in 1970, was
elected First Vice President and National Sales Manager. In 1973,
Mr. Smith was elected to the Board of Directors of Bache & Company,
Inc. In 1977, he was named Senior Officer of Commodity Division
and Metal Company and in 1980, was elected President of Bache Haley
Stuart Metal Company, Inc. In 1983, after leaving Prudential, Mr.
Smith served as Executive Vice President at R. Lewis Securities,
Inc., located in New York City, and from 1984 to 1995 was President
of Whale Securities Company, LP, also located in New York City.
Mr. Smith is also on the Boards of Pennington School and Jillians
Company. Mr. Smith is a former Member and Director of the Chicago
Board of Options Exchange; Governor of the American Stock Exchange
(AMEX); Governor and Chairman of the AMEX Commodities Exchange;
Director and Member of the Executive Committee of the Securities
Industry Automation Corp.; and Past President of the Association of
Investment Brokers.
Note that if the Merger is consummated, it is anticipated that
Grace Sim will resign as a Director from the Board.
INFORMATION REGARDING THE BOARD
The Company's Board of Directors (the "Board") has no Committees.
The Board met eleven times during the last fiscal year as issues
were raised. All directors attended 75% or more of the aggregate
number of Board meetings. The current Board includes Jan Wallace,
Elliot Smith and William Means. Basic information regarding Jan
Wallace and Elliot Smith is provided above under "Nominees", and
information on William Means is provided below.
William H. Means, Jr., 43, is a Director of the Company. Mr. Means
received his B.S. in Business Administration from Louisiana Tech
University in 1976 and his M.B.A. in Personnel Management from
Louisiana Tech in 1978. From 1978 to 1980, Mr. Means worked as an
Assistant Credit Manager, Salary Administrator and Commercial Loan
Review Analyst at Commercial National Bank
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in Shreveport,
Louisiana. From 1980 through 1984 he was the Vice President of
Commercial Loan Administration at Bossier Bank and Trust in Bossier
City, Louisiana. From 1984 through 1986 he was a Senior Vice
President at National Bank of Bossier and from 1986 through 1988 he
was a Senior Vice President at Bank of Mid-South in Bossier City,
Louisiana. From 1988 through 1989 he was a co-owner and Account
Executive at United Advertising Network and from 1989 through 1991
he was an Office and Site supervisor at McNeely Construction
Company. Mr. Means owned and operated Space Center Painting and
Construction Company, Space Center Mini Storage and Terrace Acres
Apartments from 1991 through 1994, when he joined Genesis as an
Executive Vice President. Although he continues to serve as a
Director of the Company, Mr. Means resigned all his positions with
Genesis and GCCA as of December 2, 1998.
Each of the current members of the Board have held office since the
last Annual Meeting of shareholders held in October of 1997.
Pursuant to agreements with the Company, the directors were each to
be paid $10,000 per year and $750 for each Board meeting where
their physical presence was required and they actually attended.
These amounts, however, have not been paid since the first quarter
of fiscal year 1998. At a meeting of the Board on March 24, 1999,
all Directors agreed to waive any rights they had to any such
compensation, including any accrued compensation through
consummation of the proposed merger (See discussion below regarding
terms of the proposed merger between ACS and Dynamic Acquisition
Corporation, a wholly owned subsidiary of the Company). Such
waiver will not effect any compensation earned by the Directors
following the Merger.
The following table provides information on the annual compensation
received by the Executive Officers and Directors of the Company:
Annual Compensation Table
Annual Compensation Long-term Compensation
Name and Other Restricted
Principal Annual Stock Options LTIP All other
Position Year Salary Bonus Compensation Awards /SARs Payout Compensation
Jan Wallace 1998 $180,000 $ 0 $ 3,250 $ 0 $100,000(1) $ 0 $ 0
President,
CEO, Director
Grace Sim 1998 $105,067 $ 0 $ 0 $ 0 $ 50,000(1) $ 0 $ 0
Secretary/
Treasurer
Elliot Smith1998 $ 0 $ 0 $ 3,250 $ 0 $ 0 $ 0 $ 0
Director
William H.
Means Jr. 1998 $189,000 $ 0 $ 3,250 $ 0 $ 0 $ 0 $ 0
Director
There can be no assurance that the amounts of compensation
actually paid, or the persons to whom it is paid for 1999, will
not differ materially from the above 1998 amounts.
(1) Exercised in 1998.
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Options
In 1998, there were no options granted to the Company's officers
or directors; however the following officers and directors
exercised prior existing options in the amounts indicated below:
Number of Shares
Name of Options Exercised Exercise Price Proceeds to Company
Jan Wallace 100,000 $1.00 $100,000
Grace Sim 50,000 $1.00 $ 50,000
Florian Homm 100,000 $1.00 $100,000
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEES.
THE MERGER
GENERAL
The following information with respect to the Merger is qualified
in its entirety by reference to the complete text of the Merger
Agreement, a copy of which is included with this Proxy Statement as
Exhibit 2, and the Capital Contribution Agreement, a copy of which
is included in this Proxy Statement as Exhibit 1.
As of March 30, 1999, the Company entered into a Capital
Contribution Agreement with ACS, Advanced Clinical Systems, Inc.
("Advanced") and Advanced-Dynamic, LLC ("LLC") under which the
Company contributed its operating subsidiaries, Genesis Health
Management Company ("Genesis") and Geriatric Care Centers of
America, Inc. ("GCCA"), and ACS contributed its subsidiary,
Advanced, and the operating subsidiaries of Advanced to the newly
formed LLC. In consideration of which, each of the Company and ACS
received a fifty percent (50%) equity interest in the LLC. Genesis
and GCCA are referred to together as the "Dynamic Subsidiaries" and
Advanced and all of the subsidiaries of Advanced are referred to
together as the "Advanced Subsidiaries". The Capital Contribution
Agreement and the contributions to the LLC were completed
contemporaneously as of March 30, 1999 with the parties' agreement
to the LLC's Operating Agreement. The LLC's Operating Agreement
sets forth the agreement of the Company and ACS with respect to the
ownership and management of the LLC, the Dynamic Subsidiaries and
the Advanced Subsidiaries pending consummation of a proposed merger
of ACS into Dynamic Acquisition Corporation ("DAC"), a newly formed
Nevada corporation and a wholly owned subsidiary of the Company
(the "Merger"). Until the Merger, the operations, assets and
liabilities of the Advanced Subsidiaries and the Dynamic
Subsidiaries will remain segregated even though all such
subsidiaries are owned by the LLC. The LLC's Operating Agreement
also sets forth the agreement of the Company and ACS to dissolve
the LLC and return the subsidiaries to their respective companies
in the event that the Merger (more fully described below) is not
consummated by December 15, 1999.
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The Capital Contribution
Agreement and the LLC's Operating Agreement are attached hereto as
Exhibits 1 and 3 respectively, and incorporated by this reference.
On the same date (March 30, 1999), the Company, DAC, ACS and
Advanced also entered into an Agreement and Plan of Merger (the
"Merger Agreement"). The Merger Agreement contemplates that upon
approval by the shareholders of the Company (and the satisfaction
or waiver of the other conditions of the Merger and Contribution
Agreements), the Merger between DAC and ACS will take place. Upon
completion of the Merger, DAC will be the surviving company and
remain a wholly-owned subsidiary of the Company. ACS will cease to
exist and the ACS shareholders will become shareholders of the
Company based on an exchange of shares that provides existing ACS
shareholders with newly issued common stock representing
approximately 55% of the outstanding shares of the Company.
Thereafter, the Company will, directly or indirectly, be the sole
controlling shareholder of all the Advanced and Dynamic
Subsidiaries. All the terms and conditions upon which the Merger
is to be effected are set forth in the Merger Agreement, attached
hereto as Exhibit 2, and incorporated by this reference.
The Company has recently negotiated an Amendment to the Merger and
Contribution Agreements that have made certain clarifications and
modifications to these Agreements. These changes are reflected
herein . A copy of the Amendment to the Contribution Agreement is
attached hereto as Exhibit 9 and incorporated by this reference,
and a copy of the Amendment to the Agreement and Plan of Merger is
attached hereto as Exhibit 10 and incorporated by this reference.
The Company has also agreed to enter into a Registration Rights
Agreement with the ACS Stockholders upon closing of the Merger (the
"Registration Rights Agreement"). Under this agreement, the Company
will grant registration rights to the ACS Stockholders covering 50%
of the shares of the Company's common stock to be issued upon
consummation of the Merger. These rights will require the Company
to file a registration statement pursuant to the Securities Act of
1933 ("Securities Act") to qualify 25% of the shares issued to the
ACS stockholders within 90 days of closing of the Merger, and an
additional registration statement covering an additional 25% of the
shares within thirty (30) days after the one year anniversary of
the Merger. The form of Registration Rights Agreement is attached
as Exhibit 4 to this report and incorporated by this reference.
The number of shares of the Company issued to the ACS Shareholders
upon consummation of the Merger will be subject to adjustment based
on the fiscal performance of the Advanced Subsidiaries and the
Dynamic Subsidiaries for the year ending December 31, 1999. The
Company and the ACS Stockholders will therefore also enter into an
Escrow Agreement upon consummation of the Merger that sets forth
the terms of this adjustment (the "Escrow Agreement"). As part of
this Escrow Agreement, the Company will deposit four million,
eighty six thousand seventy three (4,086,073) shares of this common
stock with duly executed stock powers into an escrow to be held by
an escrow agent and distributed to the ACS shareholders in
accordance with the terms and provisions of the Escrow Agreement.
The Escrow Agreement is attached hereto as Exhibit 5 and described
more fully in the section entitled "Escrow Agreement" below.
The terms and conditions of the Capital Contribution Agreement, the
Operating Agreement, the Merger Agreement, the Registration Rights
Agreement and the Escrow Agreement were determined through arms-
length negotiations between the representatives of the Company and
ACS.
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The preceding information is qualified in its entirety by reference
to the complete text of the Merger Agreement, a copy of which is
included with this report as Exhibit 2, the Capital Contribution
Agreement, a copy of which is included in this report as Exhibit 1,
the LLC's Operating Agreement, a copy of which is included in this
report as Exhibit 3, the Registration Rights Agreement, a copy of
which is included in this report as Exhibit 4, and the Escrow
Agreement, a copy of which is included in this report as Exhibit 5.
BACKGROUND OF MERGER
The following is a brief discussion of the history of the
transaction.
Reasons for Merger; Recommendation of the Board of Directors
At its meetings held on March 24, 1999, the Board determined
that the Merger was in the best interests of the Company and
its shareholders. Accordingly, at this meeting, the Board
authorized the Company's President to complete negotiations
and enter into the Contribution and Merger Agreements with
Advanced and ACS. These Agreements were then ratified by the
Board at its meeting on April 9, 1999 when it directed that
the Merger Agreement be submitted to the Company's
shareholders for approval.
THE BOARD RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT.
The determination of the Board to approve the Merger Agreement
was based upon its consideration of a number of factors. The
following list includes some of the material factors
considered by the Board in its evaluation of the Merger:
(1) the Board's familiarity with the business, operations,
competitive position and prospects of the Company, and
the nature of the industry in which the Company
participates, both on a historical and a prospective
basis. In particular, the Board considered the impact of
recent regulatory changes to the health care management
business;
(2) the Board's consideration of, among other things,
information with respect to the financial condition,
results of operations and business of the Company, on
both a historical and a prospective basis, and the
influence of current industry, economic, market and
regulatory conditions. In particular, the Board
considered the current limitations of management of the
subsidiaries;
(3) the Board's consideration over the last several months of
a variety of strategic alternatives, including a number
of proposed business combination transactions, which
could not be consummated, and the Board's belief that
none of the various potential strategic alternatives
believed by the Board to be available to the Company
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at the time the Merger Agreement was executed appeared to
the Board to be as favorable to the Company and its
shareholders as the Merger with ACS;
(4) the Board's review of the historical and prospective
market prices of the Company's Common Stock to be issued
to the ACS Stockholders as the Merger Consideration;
(5) the Board's review of presentations by, and discussion of
the terms and conditions of the Merger with, senior
executive officers of the Company, representatives of its
legal counsel and representatives of the Company's Note
Holders;
(6) the acceptance by the Company's Note Holders of an offer
to replace their 10% unsecured convertible notes with a
combination of 7.5% secured convertible notes, warrants
to purchase the Company's Common Stock and shares of the
Company's Common Stock.
In view of the wide variety of material factors considered in
connection with its evaluation of the Merger, the Board did
not find it practicable to, and did not attempt to, quantify
or otherwise attempt to assign relative weights to the
specific factors described above in reaching its
determination.
The vote of the directors was Director Wallace and Director
Smith in favor and Director Means opposed. Director Means
stated that he will vote his shares against the merger, but
will take no action to solicit proxies or other opposition
against the proposed merger. Directors Wallace and Smith have
stated that they will vote their shares of stock in favor of
the merger.
Letter Of Intent
Following extensive discussions, the Company executed a letter
of intent with Advanced (the "Letter of Intent"). The Letter
of Intent set forth the understanding between the Company and
Advanced regarding certain preliminary discussions and due
diligence investigations leading toward a proposed business
combination. The Letter of Intent was not legally binding on
either the Company or Advanced, with the exception of certain
covenants regarding confidentiality, access and expenses.
The Letter of Intent contemplated the merger of Advanced with
a subsidiary of the Company and the issue of a number of
common shares of the Company equal to 122% of its issued and
outstanding shares such that the shareholders of Advanced
would own 55% of the post-closing issued and outstanding
shares of the Company. The Letter of Intent stated that the
merger was subject to re-financing of the Dynamic convertible
unsecured debt such that the principal amount outstanding
after re-financing was no more than $10,000,000 bearing an
annual interest rate of no greater than 10% per annum.
The Company and Advanced determined to proceed with the two
stage merger transaction as set forth in the Contribution and
Merger Agreements instead of the merger transaction set forth
in the Letter of Intent. Among other things, this two stage
structure enables the
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Company and Advanced to pursue re-financing of Advanced's
existing debt with NationsCredit, as
discussed below in the section on "Conditions to the Merger",
based on their combined business operations.
Interim Management Agreement
The Company entered into an interim management agreement with
Advanced dated December 7, 1998 (the "Interim Management
Agreement"). The Interim Management Agreement was entered
into to enable the Company to continue the management of the
Genesis and GCCA businesses with minimal disruption upon the
resignation of certain members of the management of those
companies and while merger talks proceeded.
Under the Interim Management Agreement, Advanced agreed to
provide management and operation services for the geriatric
psychiatric health care business carried on by Genesis and
GCCA pending execution of the Capital Contribution Agreement
and the Merger Agreement. The services involved supervision of
all day to day management and operation activities, with the
assistance of the staff of Genesis and GCCA. In
consideration, the Company agreed to pay to Advanced a fee
equal to $15,000 per month, pro-rated for any portion of a
month in which the services were provided. In addition, the
Company agreed to reimburse Advanced for reasonable expenses
incurred by it and paid to arms-length parties in providing
its management services, provided that the reimbursable
expenses were limited to a maximum of $6,000 per month. The
Company retained control and responsibility for all key
management decisions of Genesis and GCCA. Advanced agreed to
make recommendations to Dynamic for all key management
decisions, provided that Dynamic was not bound to carry out
any recommendations of Advanced. Advanced agreed to co-
ordinate all management and operational activities through Ms.
Jan Wallace, President of the Company and to keep Ms. Wallace
fully apprised of all management and operational activities
conducted by Advanced.
The Interim Management Agreement was terminated by agreement
of the parties upon execution of the Capital Contribution
Agreement, and, in a modified form, has been incorporated into
the Operating Agreement of the LLC (See "Capital Contribution
and the LLC Operating Agreement" below).
Re-Financing of the Company's Convertible Notes
As a condition preceding any merger under the Letter of
Intent, the Company was required to re-finance its 10%
convertible unsecured notes due September 30, 2006 (the
"Original Notes") to a principal amount of less than
$10,000,000. On February 1, 1999, the Company completed this
re-financing. Prior to this re-financing, the aggregate
outstanding principal amount of the Original Notes was
$17,001,500. The Company reduced this outstanding debt to
$8,676,500, consisting of secured convertible notes of
$8,325,000, as described below, and Original Notes in the
amount of $351,500.
As part of the re-financing, the holders of $16,650,000 of
Original Notes accepted the Company's offer to replace those
notes with the following for every two dollars of obligation
cancelled:
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<Page 13>
(1) one dollar of debt as represented by a 7.5% secured
convertible note due December 31, 2006 with interest
payable on June 30 and December 31 of each year until
maturity (the "Secured Notes"). The Secured Notes are
convertible into common shares of the Company at a price
of $1.00 per share at any time until maturity;
(2) two warrants to purchase two common shares of the Company
at a price of $1.50 per share, good until December 31,
2000 (the "Share Purchase Warrants"); and
(3) one share of the Company's common stock.
In aggregate, the Company issued to the holders of the
Original Notes a total of 4,162,500 shares of Common Stock,
Share Purchase Warrants to purchase a total of 8,325,000
shares of Common Stock and Secured Notes in the aggregate
principal amount of $8,325,000. A balance of $351,500 of the
Original Notes remain outstanding.
Capital Contribution and the LLC Operating Agreement
As of March 30, 1999, ACS, Advanced, the LLC and the Company
entered into the Capital Contribution Agreement. The Capital
Contribution Agreement is the Agreement under which the
Company and ACS contributed their operating subsidiaries to
the LLC in a form of joint venture. At the same time, the
parties entered into the LLC's Operating Agreement under which
the LLC was to be governed. This includes, in general, the
terms of the ownership and management of the LLC, the Dynamic
Subsidiaries and the Advanced Subsidiaries pending
consummation of the proposed merger.
ACS and the Company were given equal interests in the LLC in
exchange for their contribution of their respective
subsidiaries. The administration of the day-to-day business
and affairs of the LLC was delegated by the Members to four
Managers: a Chief Manager, a Vice Manager, an Advanced
Operations Manager, and a Dynamic Operations Manager. Kevin
Lee was designated the Chief Manager, Jan Wallace was
designated the Vice Manager, Andrew Miller was designated the
Advanced Operations Manager, and Clay Deardorff was designated
the Dynamic Operations Manager.
In general, the Chief Manager carries out the day-to-day
management and operations of the LLC in accordance with the
directions, and subject to the review, of the Members. The day
to day management and operation of the geriatric psychiatric
health care businesses carried on by the Dynamic Subsidiaries
is carried out by Advanced, with the assistance of the staff
of the Dynamic Subsidiaries. In consideration, the Dynamic
Subsidiaries pay to Advanced a fee equal to $7,000 per month,
payable in advance, pro-rated for any portion of a month in
which the services are provided. In addition, the Dynamic
Subsidiaries must reimburse Advanced for its reasonable
expenses incurred in providing its management and operations
services. These reimbursable expenses are limited to a
maximum of $6,000 per month. The Dynamic Subsidiaries may, in
their sole discretion, defer such monthly payments until June
30, 1999, upon which date all accrued sums become payable
unless the merger has been completed by that time (in which
case all such amounts are forgiven). See discussion on
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<Page 14>
Interim Management Agreement above.
Dynamic, through the Dynamic Operations Manager, will retain
control over and will continue to assume all responsibility
for all key management decisions of the Dynamic Subsidiaries.
Advanced will make recommendations to Dynamic and the Dynamic
Operations Manager for all key management decisions, provided
that Dynamic and the Dynamic Operations Manager are not bound
to carry out any recommendation of Advanced. Advanced must
carry out all management directions made by Dynamic, provided
they are within the scope of the applicable portions of the
LLC's Operating Agreement.
In addition, Advanced must co-ordinate all management and
operational activities through the Dynamic Operations Manager.
Advanced must keep Dynamic and the Dynamic Operations Manager
fully apprised of all management and operational activities
conducted by Advanced.
The LLC's Operating Agreement also sets forth the agreement of
the parties to dissolve the LLC in the event that the proposed
merger is not consummated by December 15, 1999. In such a
case, the subsidiaries are to be returned to the control of
their respective companies.
A copy of the LLC's Operating Agreement is attached hereto as
Exhibit 3.
INFORMATION REGARDING ACS
General
ACS was incorporated in Delaware in April 1995, and its predecessor
was incorporated in 1989. Its principal executive offices are
located at 49 Music Square West, Suite 502, Nashville, Tennessee
37203-3272 and its telephone number is (615) 321-5577.
ACS, through its subsidiaries, operates outpatient and inpatient
behavioral health programs for hospitals and community mental
health centers. ACS' business emphasis is in managing behavioral
health services for geriatric patients. ACS was formed to operate
hospital-based, diagnostically-oriented pain management units, and
although that business is profitable, ACS intends to emphasize
behavioral healthcare in the future. ACS has 7 contracts with
hospitals for the operation of pain centers, has 14 contracts for
the operation of mental health programs, and has practice
management agreements with 32 clinicians.
Credit Facility
ACS entered into a credit agreement (the "Credit Agreement") dated
as of March 31, 1998 with certain lenders and NationsCredit
Commercial Corporation ("NationsCredit"), as agent. As of May 1,
1999, approximately $5.9 million was outstanding under the loan.
ACS is currently in default under the Credit Agreement for, among
other matters, failing to meet certain financial covenants and
entering into the Contribution Agreement and Merger Agreement
without its lender's consent.
By letter dated April 13, 1999 NationsCredit agreed to forbear
until December 15, 1999 from exercising its rights and remedies
available to it under the Credit Agreement. However, that
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<Page 15>
forbearance was subject to several conditions, including resolution
of certain existing defaults to the lenders' satisfaction by April
30, 1999. The parties have not yet resolved such defaults.
Accordingly, the lenders may exercise their rights under the Credit
Agreement at any time, including declaring all outstanding amounts
immediately due and payable. The lenders have not yet exercised
any such rights, and ACS is continuing its efforts to resolve all
outstanding matters with its lenders in order that the Merger may
proceed.
ACS is in the process of identifying a lender or lenders who would
refinance, in whole or in part, ACS' existing line of credit,
since consent of the current lenders or refinancing is a condition
for consummation of the Merger.
Operations
Services
Through its New Day and Pain Care subsidiaries, ACS provides
management services to hospitals and community mental health
centers under long-term contracts for the development, staffing and
management of outpatient and inpatient specialty units, which units
are owned by such hospitals and community mental health centers.
These units are dedicated to the diagnosis and treatment of
individuals suffering with mental health or chronic pain
conditions. ACS currently operates in the states of Alabama,
Arkansas, Florida, Kentucky, Tennessee and Texas, and the District
of Columbia.
Typically, ACS establishes a relationship with a hospital or
community mental health center by entering into a service agreement
or management agreement. The service agreements of ACS' behavioral
health and pain management divisions are similar in content. The
agreements normally require ACS to develop and operate mental
health or pain management programs for the hospital or community
mental health center The agreements typically last for one to
three years and some automatically renew from year to year. Among
the services and resources ACS commonly furnishes under these
agreements are management services, written material necessary to
develop, market, implement and operate a given program, and trained
and experienced health management professionals who serve in such
capacities as program directors, medical directors, clinicians, and
social workers. ACS establishes its relationship with medical
directors and certain other professional personnel by way of
independent contractor agreements. These agreements normally
require the independent contractor to render services at a
designated location managed by ACS in return for a monthly fee paid
by ACS to the contractor.
Revenue Sources
The table below sets forth the percentage of operating revenues
derived from each payor source for the fiscal year ended June 30,
1998 and the nine month period ended March 31, 1999.
Year Ended 9 Months
Revenue Source 06/30/98 Ended 03/31/99
-------------- ---------- -------------
Hospital Management Fees 85.6% 91.9%
Practice Management Fees 7.7% 6.4%
Managed Care Management 5.4% 1.1%
Other 1.3% 0.6%
------ ------
100.0% 100.0%
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<Page 16>
The following table sets for the percentage of payor sources for
the operating revenues comprising "Practice Management Fees" set
forth in the first table above for the two fiscal periods noted.
Year Ended 9 Months
Payor Source 06/30/98 Ended 03/31/99
- -------------- ---------- -------------
Medicare 20.0% 31.8%
Workers
compensation
insurance
carriers 33.3% 31.2%
Commercial
Insurers 13.4% 9.0%
HMOs/PPOs 20.3% 16.3%
Others 13.0% 11.7%
_____ _____
100% 100%
The following table sets for the percentage of payor sources for
the operating revenues comprising "Hospital Management Fees" set
forth in the table above for the two fiscal periods noted.
Year Ended 9 Months
Payor Source 06/30/98 Ended 03/31/99
- -------------- ---------- -------------
Hospital 86.2% 89.8%
Community Mental
Health Centers 13.8% 10.2%
_____ _____
100% 100%
Competition
The behavioral health services market is highly fragmented. The
primary competition for ACS' behavioral health operations is
provided by specialized managers similar to ACS that also contract
with hospitals to manage psychiatric programs. Some of these
managers have greater financial, personnel and other resources than
ACS. Management believes that the competitive factors most
important in this industry are quality of care and service, ability
to develop and retain positive relationships with referral sources,
competitive pricing and comprehensiveness of offered services. In
almost every new business opportunity, ACS encounters competition
from a specialized manager. The competitive bidding usually occurs
whether the hospital already has a specialized manager under
contract that is subject to renewal or when a hospital is
contemplating opening a new psychiatry services unit. In ACS' pain
management division, the competition is provided by departments of
competing hospital free-standing physician specialty clinics and
surgery centers.
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<Page 17>
Government Regulation
ACS, as a participant in the health care industry, is subject to
extensive federal, state and local regulation. Almost all of the
operations ACS manages are subject to federal laws. Such programs
are also subject to state laws governing all healthcare providers,
including physicians, hospitals and mental health facilities.
In recent years, various state and federal regulatory agencies have
stepped up investigative and enforcement initiatives with respect
to the health care industry in general, and many companies
providing health care services have received subpoenas and other
requests for information from these regulatory agencies in
connection with the health care services they provide. In
October, 1998, the Health Care Financing Administration ("HCFA")
and Medicare's investigative arm, the Office of Inspector General
of the Department of Health and Human Services ("OIG") announced
that partial hospitalization programs would become the focus of
intense governmental scrutiny, in the wake of findings that
partial hospitalization services provided at community mental
health centers across the country did not meet program
requirements. As a result of this initiative, ACS, along with
other providers of partial hospitalization services, has been asked
by the government for information about its programs. The OIG
inquiries to ACS have focused on the partial hospitalization
program which ACS manages at Tomball Regional Hospital in Tomball,
Texas, and OIG representatives have indicated to ACS that the
Tomball, Texas hospital program was selected because of a higher
than average utilization rate. ACS is cooperating with the
government in its efforts to proceed with the audit.
ACS has been informed by the OIG auditor performing the audit at
Tomball Texas that neither ACS nor the hospital is currently the
subject of an investigation. The government has broad authority
and discretion in enforcing applicable laws and regulations, and
therefore the scope and outcome of these investigations and
inquiries cannot be predicted with certainty. Also, there is no
certainty that the audit of the Tomball, Texas program will not
lead to an investigation, or that there might not be future audits
and/or investigations.
Healthcare law is an area of extensive and dynamic regulatory
change. Changes in laws or regulations or new interpretations of
existing laws or regulations can have a dramatic effect on
permissible activities, the relative costs associated with doing
business, and the amount and availability of reimbursement by
government and third-party payors. There can be no assurance that
either the federal, state or local governments will not impose
additional regulations upon the services ACS provides which could
adversely affect ACS' ability to carry on each of its lines of
business as presently conducted.
Year 2000 Disclosure
The following is a Year 2000 Readiness Disclosure for purposes of
the Year 2000 Information and Readiness Disclosure Act.
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Many computer software programs were written using two digits
instead of four to define the applicable year, resulting in such
programs interpreting a date including the digits "00" as the Year
1900 instead of the Year 2000. This Year 2000 ("Y2K") problem
could result in system failures which disrupt services,
collections, payroll and other standard business operations.
ACS has completed an assessment of its internal computer software
systems with potential Year 2000 ("Y2K") problems and has completed
its upgrade of all hardware. ACS has obtained assurances from its
software vendors that all software material to ACS' operation is
Y2K compliant with the exception of billing software. ACS has
acquired replacement software at a cost of approximately $100,000
and expects to complete its installation by June 30, 1999. Testing
of such software for Y2K compliance is being conducted in
conjunction with its installation. ACS has employed a director of
information systems and has designated 18 individuals to evaluate
all software ACS uses to ensure that computer processing can
continue without system problems on and after January 1, 2000.
ACS has not developed a formal contingency plan should Y2K problems
arise, and it is unknown whether such a contingency plan will be
developed.
ACS has been informed that its hospital and community mental
health center clients have assessed their systems and potential
risks regarding Y2K and ACS believes its clients are or will be
prepared to deal with any Y2K issues timely. ACS does not expect
any material third party computer system problems to arise,
however, ACS has no means to assure that third party programs will
be Y2K compliant on a timely basis. The effect of any such
noncompliance is indeterminable.
ACS can give no assurance that it will not encounter Y2K problems,
that the third parties it does business with will adequately
address their Y2K problems, or that Y2K disruptions in the economy
or healthcare industry in general will not materially adversely
affect ACS . The failure of ACS clients or other third parties to
adequately address Y2K issues could have a material adverse effect
on ACS' business, results of operations or financial condition.
Any such material adverse effects also could result in defaults
under ACS' Credit Agreement (as it may then exist) or in ACS being
sued. The amount of potential liability and losses in any such
event cannot be estimated.
Insurance
ACS' professional liability policies are on an occurrence basis and
are renewable annually with per claim coverage limits of up to
$1,000,000 per occurrence and $3,000,000 in the aggregate. ACS
also maintains general liability coverage with a limit of
$1,000,000 per occurrence and $3,000,000 in the aggregate. The
general liability policy also provides up to $50,000 coverage for
any one fire and $5,000 coverage for any one person. Furthermore,
ACS carries workers' compensation insurance with policy limits of
$100,000 for each employee or each accident, up to a $500,000
policy limit. Additionally, ACS carries property insurance for
which coverage varies by location. Management believes that such
insurance coverage is within the range of industry norms.
There can be no assurance that any of ACS' insurance will be
sufficient to cover any judgments, settlements or cost relating to
any pending or future legal proceedings or that any such insurance
will be available to ACS in the future on satisfactory terms, if at
all. If the insurance carried by ACS is
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not sufficient to cover
any judgments, settlements or cost relating to pending or future
legal proceedings, ACS' business and financial condition could be
materially, adversely affected.
Employees
On May 1, 1999, ACS employed approximately 160 full-time and 60
part-time individuals. ACS believes that its employee relations
are good.
Properties
ACS owns no real estate. It currently leases or subleases several
properties under agreements with terms of 5 to 7 years. ACS'
facilities are adequate to serve its current operations.
Management of ACS
ACS' Directors and Executive Officers are as follows:
Name Age Position
Kevin D. Lee 41 President; Director
Andrew W. Miller 55 Director
James T. Harper 49 Executive Vice-President
Lisa A. Manning, CPA 34 Vice-President
Scott N. Mohler, Ph.D. 42 Vice-President
Biographies
Kevin D. Lee has been the President and a member of the board of
directors of Advanced since July 1990. In that role, he is
responsible for the overall business development and management of
the company. Mr. Lee coordinates Advanced's business relationships
and contractual arrangements with hospitals and clinicians. From
1987 to 1990, he was president of The Rehab Group, Inc., a
privately-held company he co-founded that, at the time of his
departure, operated 26 comprehensive outpatient rehabilitation
clinics and contracts with 70 nursing homes to provide physical
therapists. From 1985 to 1987, Mr. Lee was CFO of Rehability
Corporation (acquired by Living Centers of America, a publicly held
company) that provides outpatient rehabilitation services in
several hundred locations. From 1983 to 1985, Mr. Lee was
corporate controller of American Medical Centers, Inc., an operator
of 10 psychiatric hospitals and five medical-surgical hospitals,
which was sold in 1985 to Hospital Corporation of America and other
purchasers. Mr. Lee began his career in 1980 with Ernst & Young,
an accounting and consulting firm.
Andrew W. Miller has been a member of Advanced's board of
directors since the company's formation in early 1990. In 1982,
Mr. Miller co-founded and served on the board of directors of
Surgical Care Affiliates, Inc., one of the nation's largest
operators of outpatient surgery centers
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<Page 20>
which was recently acquired
by HealthSouth Corporation. From 1970 until 1982, Mr. Miller was
employed by Hospital Corporation of America ("HCA"). During his
time with HCA, he was president of the HCA Management Company, a
division of HCA which grew to manage 180 hospitals. Mr. Miller
serves on the board of directors of several
health services companies and has served as president of the
Federation of American Health Systems.
James T. Harper is the Executive Vice President of the New Day
Division of Advanced ("New Day"). From April 1993 to November 1994
(when New Day was acquired by Advanced) he was President of New
Day. He is responsible for developing and executing new contracts
with hospitals and community mental health centers. Prior to
working with New Day, Mr. Harper was administrator of the Center
for Psychiatric Medicine at the University of Alabama Medical
Center. From September 1989 to April 1991, Mr. Harper served as
Vice President of Operations for Innovative Health Systems, Inc.,
an operator of psychiatric and rehabilitation facilities. From
1984 to 1989, he held two hospital administrator positions with the
HCA Psychiatric Company, the latest at Parthenon Pavilion in
Nashville, Tennessee. Mr. Harper was administrator of Bridgewater
Hospital in North Little Rock, Arkansas for Qualicare, Inc. from
1979 to 1984. Mr. Harper received his MBA from the University of
Georgia and his BA in psychology from Mercer University.
Lisa A. Manning joined Advanced as controller in January 1995. She
is responsible for all accounting and corporate-level
administrative support functions for Advanced. She assists with
operations management by administrating contract compliance and
providing business office support including receivables management.
From 1991 through 1994, she was assistant controller of Rehability
Corporation. Ms. Manning began her career in 1986 with Kraft Bros.
CPAs, a regional accounting firm based in Nashville, Tennessee.
Ms. Manning received her bachelor's degree with a major in
accounting from the University of Tennessee in Knoxville in 1986
and is a certified public accountant.
Dr. Scott N. Mohler joined Advanced in September 1992 as program
director of its Lexington operation prior to its opening. The
program directors and other site managers in Advanced's Pain Care
division are supervised by Dr. Mohler. He has extensive experience
in the development and management of new pain treatment programs.
Dr. Mohler continues to practice psychology on a part-time basis
in Pain Care's Lexington unit. Previously, Dr. Mohler was
psychology services coordinator of the Occupational Medicine Center
within Cardinal Hill Hospital's Pain Management Program. Dr.
Mohler also provided psychology services for Veteran's
Administration Medical Center in Lexington. He has published
several articles with other clinicians, some of which concern pain
management. Dr. Mohler received his masters and doctorate degrees
in psychology at Virginia Tech University in Blacksburg, Virginia.
Description of ACS Capital Stock
ACS is authorized to issue 10,000,000 shares of common stock, par
value $0.01 per share. As of May 13, 1999, there were 1,391,465
shares issued and outstanding. In addition, there were options,
warrants and stock appreciation rights outstanding to purchase
1,615,000 shares of common stock. Advanced is a privately held
company with 7 stockholders. Approximately 88.8% of the
outstanding common stock (exclusive of options, warrants and stock
appreciation rights) is beneficially owned by Andrew W. Miller,
approximately 8.7% is owned by Kevin D. Lee and approximately 2.2%
is
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owned by James T. Harper. Each of Ms. Manning and Dr. Mohler
owns less than 1% of the outstanding common stock.
Financial Information of ACS
The following is the unaudited, consolidated statement of income
for ACS and its subsidiaries:
Nine months Year ending June 30,
ending 3/31/99
(unaudited) 1998 1997
-------------- ----------- -----------
Net revenues $8,902,729 $12,925,752 $11,928,867
Operating
expenses $8,453,174 $11,523,749 $11,191,500
Other revenues
expenses):
Merger-related
expenses (106,201) - -
Interest expense (421,809) (209,911) (145,819)
Investment income 29,224 18,297 57,329
Other 7,401 9,662 1,278
-------------- ----------- -----------
Total other
expenses (491,385) (181,952) (87,212)
Income before taxes (41,830) 1,220,051 650,155
Provision for
income taxes - 521,825 12,962
Net income (loss) ($ 41,830) $ 698,226 $ 637,193
-------------- ----------- -----------
The following are the consolidated Balance Sheets for ACS and its
subsidiaries:
March 31, 1999 June 30, June 30,
(unaudited) 1998 1997
-------------- ----------- -----------
Cash $ 428,704 $ 567,683 $ 412,986
Other current
assets 3,091,589 2,933,473 2,579,690
-------------- ----------- -----------
Total current
assets 3,520,293 3,501,156 2,992,676
-------------- ----------- -----------
Net property
and equipment 253,363 317,639 487,573
Other assets 828,272 915,396 832,414
-------------- ----------- -----------
Total assets 4,601,928 4,734,191 4,312,663
-------------- ----------- -----------
Current
liabilities 1,921,371 1,601,666 1,286,294
-------------- ----------- -----------
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Non-current
liabilities 4,800,082 5,317,442 1,042,310
-------------- ----------- -----------
Paid-in capital 2,479,435 2,372,213 1,289,920
-------------- ----------- -----------
Retained earnings 1,350,535 1,392,365 694,139
-------------- ----------- -----------
Treasury stock at
cost (5,949,495) (5,949,495) -
-------------- ----------- -----------
Total shareholders'
equity (2,119,525) (2,184,917) 1,984,059
Total liabilities
and shareholders'
equity $ 4,601,928 $4,734,191 $4,312,663
-------------- ----------- -----------
CERTAIN TAX CONSEQUENCES OF THE MERGER
The contribution by Dynamic of the stock of GCCA and Genesis to the
LLC and the merger of DAC with ACS should not result in any income
tax consequences to the shareholders of the Company.
The contribution by the Company of its subsidiaries to the LLC will
require the Company and its subsidiaries to file separate income
tax returns (as opposed to consolidated income tax returns which
they currently file) until the effective date of the Merger. If
during the period after Contribution and before the Merger, either
the Company or its subsidiaries has taxable income, they will be
required to pay federal income tax on that income and will not be
able to utilize the losses incurred during that period by the other
entities. After the Merger, the Company and its subsidiaries,
including its newly acquired subsidiaries obtained in the Merger,
will file a single consolidated tax return.
In the event the Merger is not consummated, the contribution by the
Company of the stock of its subsidiaries to the LLC should have no
impact. As long as the stock of its subsidiaries is returned to
the Company prior to December 31, 1999, the Company will take the
position that the contribution was rescinded and thus never
occurred for federal income tax purposes. There is some risk that
the IRS may successfully dispute this position, in which event the
tax consequences to the Company and its subsidiaries would be as
described above.
It should also be noted that Genesis and GCCA will pay management
fees to the Company in an amount equal to the interest due on the
Dynamic Secured Notes. If the IRS disallows the deduction for
these fees, it is likely that Genesis and/or GCCA will have taxable
income during the period their stock is held by the LLC. As a
result, they will be required to pay federal income tax on that
income for that period if they are required to file separate income
tax returns, as described above. It is also possible that the
deduction for the interest accruing on the Secured Notes during
this period will be of no tax benefit.
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for by the
Company as a "purchase" for accounting and financial reporting
purposes. Under this method of accounting, the purchase price will be
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allocated to assets acquired and liabilities assumed based on
their estimated fair values at the time the merger is consummated.
ACS will be treated as the purchaser for accounting and financial
reporting purposes due to the fact that the ACS Stockholders will
own in excess of 50% of the outstanding shares of the Company's
common stock upon completion of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Except as summarized below, none of the Company's directors or
executive officers has any material interest in or relation to the
Merger.
As of May 10, 1999, the current directors and executive officers of
the Company beneficially owned 650,000 shares (approximately 4.5%)
of the outstanding shares of the Company's Common Stock. Such
directors and executive officers have no right to acquire any
additional shares through the exercise of stock options or
otherwise.
Pursuant to the Merger Agreement, Jan Wallace, the Company's
President and Chief Executive Officer, and Grace Sim, the Company's
Secretary will enter into termination agreements with the Company
on consummation of the Merger (the "Termination Agreements").
Pursuant to the Termination Agreements, each of Ms. Wallace's and
Ms. Sim's employment agreements will be terminated effective upon
the consummation of the Merger. The Company will pay to Ms.
Wallace and Ms. Sim all accrued salary and reimbursable expenses
owing, but will not pay any termination fee or other bonus. Ms.
Wallace and Ms. Sim will agree to certain non-disclosure and non-
competition covenants in favor of the Company, and the Company will
agree to indemnify Ms. Wallace and Ms. Sim against any actions or
liabilities arising from their employment with the Company or their
activities as officers or directors of the Company and its
subsidiaries, except in the circumstance of fraud or intentional
misconduct.
Upon consummation of the Merger, the Company will enter into an
Employment Agreement with Mr. Kevin D. Lee to act as the Company's
President and Chief Executive Officer.
Kevin D. Lee has been the President and a member of the board of
directors of Advanced since July 1990. In that role, he is
responsible for the overall business development and management of
the company. Mr. Lee coordinates Advanced's business relationships
and contractual arrangements with hospitals and clinicians. From
1987 to 1990, he was president of The Rehab Group, Inc., a
privately-held company he co-founded that, at the time of his
departure, operated 26 comprehensive outpatient rehabilitation
clinics and contracts with 70 nursing homes to provide physical
therapists. From 1985 to 1987, Mr. Lee was CFO of Rehability
Corporation (acquired by Living Centers of America, a publicly held
company) that provides outpatient rehabilitation services in
several hundred locations. From 1983 to 1985, Mr. Lee was
corporate controller of American Medical Centers, Inc., an operator
of 10 psychiatric hospitals and five medical-surgical hospitals,
which was sold in 1985 to Hospital Corporation of America and other
purchasers. Mr. Lee began his career in 1980 with Ernst & Young,
an accounting and consulting firm.
Under the Employment Agreement, Mr. Lee would be employed for a
period of 3 years at a salary of $150,000 per year. He would also
be entitled to a bonus, up to a maximum amount of $100,000 per
year, based on the Company's consolidated earnings. Mr. Lee would
also be entitled to purchase
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<Page 24>
1,000,000 shares of the Company's
Common Stock pursuant to a Non-Statutory Stock Option Agreement.
Upon termination of Mr. Lee's Employment Agreement by reason of
death, illness, injury, incapacity or upon 30 days' advance written
notice by Mr. Lee, the Company will pay Mr. Lee any earned buy
unpaid salary, any un-reimbursed expenses, plus a cash payment
equal to the cash bonus Mr. Lee received for performance during the
most recently completed fiscal year of the Company multiplied by a
fraction, the numerator of which is the number of months in the
current fiscal year during which the Employment Agreement was
effective and the denominator of which is twelve.
If Mr. Lee's Employment Agreement is terminated due to misconduct,
neglect, dishonesty or similar offenses, the Company will pay Mr.
Lee any earned but unpaid salary and any un-reimbursed expenses.
If Mr. Lee's Employment Agreement is terminated without cause, the
Company will pay Mr. Lee $150,000 plus the total potential cash
bonus amount of $100,000 so long as Mr. Lee has complied with
certain non-competition, non-solicitation and confidentiality
obligations set forth in the Employment Agreement. Additionally,
in the event of a termination without cause, Mr. Lee's option to
purchase 1,000,000 shares of the Company's stock shall remain
exercisable for five years.
A copy of Mr. Lee's proposed Employment Agreement and Stock Option
Agreement are attached hereto as Exhibits 6 & 7, respectively.
ISSUANCE OF COMMON STOCK AND COMPOSITION OF THE BOARD
Upon consummation of the Merger, the Company will issue to the ACS
Stockholders pro-rata share certificates representing newly issued
common shares in the Company in an amount equal to 122% of the
currently issued and outstanding shares of the Company. This will
effectively give the ACS shareholders a combined voting strength of
55% following the merger. Each share certificate will be endorsed
with a legend confirming that such shares are restricted and may
not be offered or sold without registration or exemption under
federal and state securities laws, however, one-half of the shares
will become subject to the Registration Rights Agreement discussed
herein and attached hereto as Exhibit 4.
In addition, pursuant to the Merger Agreement and by resolution of
the Board, the number of members of the Board will be expanded from
three to five, one member of the current Board, Grace Sim will
resign, and three individuals designated by ACS will be appointed
to fill the three vacancies pursuant to the bylaws.The three
individuals that are expected to fill these vacancies are Kevin D.
Lee, Andrew W. Miller and James T. Harper. Information on the
background of Kevin D. Lee is provided above. Information on the
background of Andrew W. Miller and James T. Harper is as follows:
Andrew W. Miller has been a member of Advanced's board of
directors since the company's formation in early 1990. In 1982,
Mr. Miller co-founded and served on the board of directors of
Surgical Care Affiliates, Inc., one of the nation's largest
operators of outpatient surgery centers which was recently acquired
by HealthSouth Corporation. From 1970 until 1982, Mr. Miller was
employed by Hospital Corporation of America ("HCA"). During his
time with HCA, he was
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<Page 25>
president of the HCA Management Company, a
division of HCA which grew to manage 180 hospitals. Mr. Miller
serves on the board of directors of several health services
companies and has served as president of the Federation of American
Health Systems.
James T. Harper is the Executive Vice President of the New Day
Division of Advanced ("New Day"). From April 1993 to November 1994
(when New Day was acquired by Advanced) he was President of New
Day. He is responsible for developing and executing new contracts
with hospitals and community mental health centers. Prior to
working with New Day, Mr. Harper was administrator of the Center
for Psychiatric Medicine at the University of Alabama Medical
Center. From September 1989 to April 1991, Mr. Harper served as
Vice President of Operations for Innovative Health Systems, Inc.,
an operator of psychiatric and rehabilitation facilities. From
1984 to 1989, he held two hospital administrator positions with the
HCA Psychiatric Company, the latest at Parthenon Pavilion in
Nashville, Tennessee. Mr. Harper was administrator of Bridgewater
Hospital in North Little Rock, Arkansas for Qualicare, Inc. from
1979 to 1984. Mr. Harper received his MBA from the University of
Georgia and his BA in psychology from Mercer University.
TERMS OF THE MERGER
The terms of the Merger are set forth in the Merger Agreement that
appears as Exhibit 2 to this Proxy Statement, and the description
of the Merger Agreement contained herein is qualified in its
entirety by reference to the entire Agreement. Shareholders are
urged to review the Merger Agreement carefully.
General
The Merger Agreement sets forth the terms and conditions upon
which the Merger is to be effected. The Merger is contingent
upon the approval of the Merger Agreement by the holders of a
majority of the shares voting at the Annual Meeting and the
satisfaction or waiver of the other conditions contained in
the Merger Agreement.
At the Effective Time (as defined below), ACS will merge with
and into DAC, and thus DAC will be the surviving company in
the Merger. Pursuant to the Merger Agreement, each share of
ACS Common Stock issued and outstanding will be canceled and
converted into the right to receive the Merger Consideration
(as defined in the Merger Agreement).
Effective Time Of The Merger
As soon as practicable after satisfaction or, to the extent
permitted, waiver of all conditions to the Merger set forth in
the Merger Agreement, a Certificate of Merger will be
executed, delivered and filed with the offices of Secretaries
of State of Nevada and Delaware. The "Effective Time" of the
Merger will be such time as the Certificates of Merger are
duly filed with the Nevada Secretary of State and the Delaware
Secretary of State, and any additional requirements are
complied with, or such later time as is specified in the
Certificates of Merger.
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<Page 26>
Merger Consideration
In the Merger, each share of Common Stock of ACS issued and
outstanding as of the Effective Time will be canceled and
converted into the right to receive the Merger Consideration
(as defined in Section 2.2 of the Merger Agreement attached
hereto as Exhibit 2).
Pursuant to the Amendment to the Merger Agreement (provided in
Exhibit 10 attached hereto), at least 90% of the exercisable
Stock Options, SARs and Warrants held by Advanced
and ACS shareholders, and any rights thereunder, outstanding and
unexercised immediately prior to the Effective Time will be
canceled on or prior to the Effective Time in exchange for the
right to receive a number of shares of the Company's common
stock. The formula for determining the amount of this stock is
contained in the Merger Agreement, but may be modified based
on current negotiations with ACS. Under the Cancellation
Agreements, all unvested Stock Options (including those held
by officers) will accelerate and become fully vested
immediately prior to consummation of the Merger.
Amendment, Extension and Waiver
Subject to the applicable provisions of the Nevada Revised
Statutes, the parties may amend or waive any provision of the
Merger Agreement if such amendment or waiver is in writing and
signed, in the case of an amendment, by all parties to the
Merger Agreement, and, in the case of a waiver, by the party
against whom the waiver is to be effective. After approval by
the shareholders of the Company, however, no such amendment or
waiver may, without further approval of such shareholders,
change the amount or kind of the Merger Consideration, change
the Articles of the Surviving Company, or change any terms of
the Merger Agreement if such change would adversely affect
such shareholders. The Merger Agreement may not be amended
unilaterally by any party.
At any time prior to the Effective Time, the parties may, by
action of the Board, to the extent legally allowed: (1) extend
the time for the performance of any of the obligations or acts
of the other parties under the Merger Agreement; (2) waive any
inaccuracies in the representations and warranties of the
other parties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement; (3)
agree not to proceed with the Merger; or (4) waive compliance
with any of the agreements or conditions of the other parties
contained in the Merger Agreement, other than approval of the
Company's shareholders. Any agreement by any of the parties
to such an extension or waiver shall be valid only if set
forth in writing and signed by the applicable party or
parties.
Conditions to the Merger
The respective obligations of each party to consummate the
Merger are subject to the satisfaction or, where permissible,
waiver of the following conditions:
(1) The Contribution Agreement will have been previously
consummated and all deliveries to be made and obligations to
be performed at closing of the Contribution shall,
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<Page 27>
to the extent not completed at such closing, have been
subsequently completed.
(2) The Merger Agreement and the transactions contemplated
thereunder shall have been approved by shareholders of the
Company in the manner required by the applicable laws of the
State of Nevada and the Charter and Bylaws of the Company.
Further, the Original ACS Stockholders (as defined in the
Merger Agreement) will have executed and delivered such
documents and performed such acts as reasonably required to
effectuate the Merger.
(3) Each party to the Merger Agreement shall have received
from the other parties copies of all resolutions and/or
consent actions adopted by or on behalf of the boards of
directors and shareholders of such other parties to the Merger
Agreement, certified as of the date of closing of the Merger
and evidencing approval of the Merger Agreement and the
transactions contemplated under the Merger Agreement.
(4) No action or proceeding before a court or other
governmental body by any governmental agency or public
authority shall have been instituted or threatened to restrain
or prohibit the transactions contemplated under the Merger
Agreement or to obtain an amount of damages or other material
relief in connection with the execution of the Merger
Agreement or any related agreements or the consummation of the
Merger; and no governmental agency shall have given notice to
any party to the Merger Agreement to the effect that
consummation of the transactions contemplated under the Merger
Agreement would constitute a violation of any law or that it
intends to commence proceedings to restrain consummation of
the Merger.
(5) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission,
board or other regulatory body or any other third party
(including lenders and lessors) required in connection with
the execution, delivery and performance of the Merger
Agreement shall have been obtained or made.
(6) Advanced's lender, NationsCredit, shall have consented to
the Merger or have been paid and all obligations of Advanced
to NationsCredit satisfied in full. Advanced is indebted to
NationsCredit pursuant to a secured line of credit facility
which provides that any change of control of Advanced is a
default under the loan facility unless the prior written
consent of NationsCredit has been obtained. By letter dated
April 13, 1999 NationsCredit agreed to forbear until December
15, 1999 from exercising its rights and remedies available to
it under the Credit Agreement. However, that forbearance was
subject to several conditions, including resolution of certain
existing defaults to the lenders' satisfaction by April 30,
1999. The parties have not yet resolved such defaults.
Accordingly, the lenders may exercise their rights under the
Credit Agreement at any time, including declaring all
outstanding amounts immediately due and payable. The lenders
have not yet exercised any such rights, and ACS is continuing
its efforts to resolve all outstanding matters with its
lenders so that the Merger may proceed.. In order for the
Merger to be consummated, the Company, ACS and Advanced must
arrange for alternate financing which will pay out the debt of
Advanced to NationsCredit in full prior to or
contemporaneously with the consummation of the Merger. Note,
NationsCredit has reserved all rights with respect to other
events of default and Advanced must obtain its written consent
before consummation of the Merger.
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<Page 28>
(7) The Company shall use its best efforts to settle any
outstanding claims, liabilities, actions or lawsuits against
or by former officers, directors, stockholders or related
parties of the Company or its subsidiaries (collectively, the
"Opposing Parties") to the satisfaction of ACS. Failure to
achieve such a settlement, however, will not be deemed a
breach of the Merger Agreement. The Company must keep ACS
fully informed as to the status of such settlement
negotiations. Any such settlement must include a written
agreement, in form satisfactory to ACS in its sole discretion,
evidencing that neither the Company, ACS, Advanced, DAC nor
any director, officer, employee, agent, affiliate or
representative of any such corporation has any obligations of
any kind whatsoever to the Opposing Parties and each is fully
released from any pre-existing obligations and claims.
Subject to the foregoing sentence, the Company will have full
authority to settle such claims as it deems appropriate, and
may enter into an agreement with its Noteholders whereby the
Noteholders agree to bear the costs of settlement negotiations
and any related litigation, including but not limited to the
costs of litigating and defending counterclaims. In
consideration for the Noteholders' financial assistance, the
Company may grant the Noteholders the right to receive
settlement proceeds from the Opposing Parties, if any, up to
an amount agreeable to the Company or ACS. In no event may
the Company or any affiliate pay the Noteholders any
consideration, in the form of cash, securities or otherwise,
for such settlement efforts. The Company is in the process of
negotiating such an arrangement with its Noteholders. Note
that this condition has been amended following renegotiations
between the Company and ACS and is contained in the Amendment
to the Agreement and Plan of Merger attached hereto as Exhibit
10 and made part hereof by this reference.
(8) The Company and each of Jan Wallace and Grace Sim shall
have entered into the Termination Agreement (as defined in the
"Interests of Certain Persons in the Merger" section above).
(9) The Company shall, prior to closing and on terms
acceptable to all parties, attempt to settle its obligations
to Genesis Merchant Group Securities LLC ("GMGS") regarding
its Agreement for a brokerage commission and issuance of its
Warrant under the terms and conditions provided in the Merger
Agreement. Any fee payable to GMGS in cash or cash equivalents
which is approved by the Company and ACS will be payable one-
half (1/2) by the Company and one-half (1/2) by ACS, and such
fee shall not effect in any way the Merger Consideration. In
the event the GMGS Warrant is not canceled or GMGS is or
becomes entitled to any the Company Common Stock or any
security convertible into the Company Common Stock, the Merger
Consideration shall be increased by that number of shares of
the Company Common Stock equal to fifty-five percent (55%) of
the number of shares of the Company Common Stock to which GMGS
is or may become entitled. Note that this condition has been
amended following renegotiations between the Company and ACS
and is contained in the Amendment to the Agreement and Plan of
Merger attached hereto as Exhibit 10 and made part hereof by
this reference.
(10) At the Effective Time the Board of Directors of the
Company shall be composed of persons acceptable to the Company
and ACS.
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<Page 29>
(11) The capitalization of ACS and Advanced shall be as
reflected in the Merger Agreement Section 3.2(1) and Section
4.1 or arrangements satisfactory to the Company, ACS and
Advanced shall have been made regarding such capitalization.
(12) The Company must deliver to Andrew W. Miller a Stock
Option Agreement in the form attached hereto as Exhibit 11.
Note that this condition has been amended following
renegotiations between the Company and ACS and is contained in
the Amendment to the Agreement and Plan of Merger attached
hereto as Exhibit 10 and made part hereof by this reference.
The obligations of the Company, DAC, ACS and Advanced to
consummate the Merger are also subject to the satisfaction or
waiver of the following conditions: (i) delivery of
Cancellation Agreements representing at least 90% of the
issued and outstanding Options, Warrants and SAR's held by
Advanced Shareholders; (ii) the absence of any breach of
certain specified representations and warranties of the
Company contained in the Merger Agreement, when made and
immediately prior to the Effective Time, and the Company's
performance or compliance, in all material respects, of or
with each of its covenants and agreements in the Merger
Agreement; (iii) the execution and delivery to Kevin Lee of an
Employment Agreement and Stock Option Agreement as President
of the Company (the forms of which Employment Agreement and
Stock Option Agreement are attached hereto as Exhibits 6 and
7, respectively); and (iv) the accuracy as of the date of the
Merger Agreement and as of the Effective Time of the
representations and warranties of the Company contained in the
Merger Agreement, except where the failure of such
representations and warranties to be accurate would not, in
the aggregate, have a material adverse effect (as defined in
the Merger Agreement).
The obligations of the Company to consummate the Merger are
also subject to the satisfaction or waiver of the condition
that the representations and warranties of ACS and Advanced
contained in the Merger Agreement be true and correct as of
the date of the Merger Agreement and as of the Effective Time,
except where the failure of such representations and
warranties to be true and correct would not, in the aggregate,
have a material adverse effect on the Company and DAC.
Conduct of Business Pending the Merger
The Company has agreed, pending the Effective Time, to
conduct, and to cause each of its subsidiaries to conduct,
their respective operations in the ordinary and usual course
of business and consistent with past practice, and to:
(1) Use its best efforts to do or cause to be done all such
acts and things as may be necessary to preserve, protect and
maintain intact the operation of its respective business and
assets as a going concern consistent with prior practice and
not other than in the ordinary course of business, including
preserving, protecting and maintaining the goodwill of the
suppliers, employees, clientele, patients and others having
business relations with such party.
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<Page 30>
(2) Use its best efforts to retain its employees in their
current positions up to closing of the Merger.
(3) Not acquire or sell or agree to acquire or sell by
merging or consolidating with, or by purchasing or selling a
substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof.
(4) Use its best efforts to facilitate the consummation of
the Merger as contemplated under the Merger Agreement,
including obtaining requisite approval of stockholders and
third parties.
(5) Not issue, deliver or sell, or authorize or propose to
issue, deliver or sell, any shares of its capital stock of any
class, any voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, except
for the exercise of any outstanding Warrants or Options or the
conversion of the Secured Notes.
(6) Not split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock, or repurchase, redeem or
otherwise acquire any shares of its capital stock.
(7) Not pay any dividend or distribution to its stockholders
as such, and not sell, discard or dispose of any of its
assets.
(8) Not dispose of, or cause the LLC to dispose of, a
significant part of any assets of the LLC, or its
subsidiaries, either currently owned or used or owned or used
after closing of the Merger, within five (5) years after the
Effective Time, other than dispositions in the ordinary course
of business.
(9) Not make any change in its business or in the utilization
of its assets and not enter into any contract or commitment or
any other transaction with respect to its business or its
assets that is contrary to its representations, warranties and
obligations as set forth in the Merger Agreement.
(10) Not, without first obtaining the written consent of the
other parties to the Merger Agreement:
a) dispose of or encumber any asset or enter into any
transaction or make any contract commitment relating to its
properties, assets and business, other than in the ordinary
course of business or as otherwise disclosed in the Merger
Agreement;
b) enter into any employment contract which is not at will or
terminable upon notice of thirty (30) days or less, without
penalty;
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<Page 31>
c) enter into any contract or agreement: (i) that cannot be
performed within three months or less, or (ii) that involves
the expenditure of over $10,000.00;
d) subject to certain specified exceptions as set-forth in
Section 6.1 of the Merger Agreement, issue or sell, or agree
to issue or sell, any shares of capital stock or other
securities;
e) make any payment or distribution under any bonus, pension,
profit-sharing or retirement plan or incur any obligation to
make any such payment or contribution that is not in
accordance with usual past practice, or make any payment or
contributions or incur any obligation pursuant to or in
respect of any other plan or contract or arrangement of
providing for bonuses, executive incentive compensation,
pensions, deferred compensation, retirement
payments, profit-sharing or the like, establish or enter into
any such plan, contract or arrangement, or terminate any plan;
f) extend credit to anyone except in the ordinary course of
business consistent with prior practice;
g) guarantee the obligation of any person, firm or
corporation;
h) amend its operating agreement, charter or bylaws, or
applicable organizational documents;
i) set aside or pay any cash dividend or any other
distribution on or in respect of its capital stock or any
redemption, retirement or purchase with respect to its capital
stock or issue any additional shares of its capital stock; or
engage in any stock split, recapitalization, reorganization or
comparable transaction;
j) discharge or satisfy any lien, charge, encumbrance or
indebtedness outside the ordinary course of business;
k) institute, settle or agree to settle any litigation, action
or proceeding before any court or governmental body; except
that ACS has consented to ongoing efforts to settle
outstanding disputes with former officers and directors of the
Company and its subsidiaries. Note that this condition has
been amended following renegotiations between the Company and
ACS and is contained in the Amendment to the Agreement and
Plan of Merger attached hereto as Exhibit 10 and made part
hereof by this reference.
l) authorize any compensation increase of any kind whatsoever
for any employee, consultant or other representative; or
m) engage in any extraordinary transaction.
(11) Prepare and file with the SEC a Proxy Statement, as
described in Section 6.5 of the Merger Agreement, relating to
the meeting of its shareholders to be held in connection with
obtaining approval to the Merger Agreement (the "Proxy
Statement").
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<Page 32>
(12) Convene and hold a meeting of its shareholders (the
"The Company Shareholders Meeting") in accordance with Nevada
law and the requirements of the NASDAQ Over-The-Counter
Bulletin Board for the purpose of obtaining the Company's
shareholder approval of the Merger and, through the Board,
recommend approval.
(13) Comply with the provisions of Rule 144(c) under the
Securities Act in order that affiliates of ACS may resell the
Company common stock they receive in the Merger pursuant to
Rule 145(d) under the Securities Act, and make sure the
registration statements to be filed pursuant to the
Registration Rights Agreement (attached hereto as Exhibit 4)
will include such information as may be requested by ACS to
permit re-sales of such Company Common Stock by persons who
may be deemed to be underwriters of the Company common stock
pursuant to Rule 145 under the Securities Act.
(14) Not knowingly or negligently take or fail to take
any action that would jeopardize the treatment of the
Contribution Agreement as a tax-free contribution or the
treatment of the Merger as a "reorganization" within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code
(and any comparable provisions of applicable state law).
(15) Provide to ACS or Advanced any records or
information that may be relevant to the preparation of its tax
returns or other financial needs.
(16) Take all reasonable actions necessary to comply
promptly with all legal requirements that may be imposed on it
with respect to the Merger and promptly cooperate with and
furnish information to the other parties in connection with
any such requirements imposed in connection with the Merger.
(17) Refrain from taking any action that would render any
of its representations and warranties contained in the Merger
Agreement untrue, inaccurate or misleading as of the closing
of the Merger and the Effective Time.
(18) Promptly notify the other parties to the Merger
Agreement of any lawsuit, claim, audit, investigation,
administrative action or other proceeding asserted or
commenced against it that may involve or relate in any way to
another party to the Merger Agreement, and promptly notify
them of any facts or circumstances that come to its attention
and that cause, or through the passage of time may cause, any
of a party's representations, warranties or covenants to be
untrue or misleading.
(20) Notify the other parties of any changes, additions
or events of which it has knowledge that would cause any
material change in or material addition to the Contribution
Agreement or the Merger Agreement, promptly after the
occurrence of such change(s), addition(s) or event(s).
(21) Timely file or cause to be filed all reports and
claims of every kind, nature or description, required by law
or by written or oral contract to be filed with respect to the
purchase of services by third party payors, including, but not
limited to, Medicare, Medicaid and Blue Cross.
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<Page 33>
(22) Prepare and file its own tax returns that are due on
or before the closing of the Merger, and pay all taxes due.
(23) Maintain its books of account in the usual, regular
and ordinary manner on a basis consistent with prior years and
make no change in its accounting methods or practices.
(24) Comply with all applicable statutes, laws,
ordinances and regulations.
(25) Keep, hold and maintain all Licenses (as defined in the
Merger Agreement).
(26) Use reasonable efforts and cooperate fully with the
other parties to obtain all consents, stockholder and other
approvals, exemptions and authorizations of third parties,
whether governmental or private, necessary to consummate the
transactions contemplated under the Contribution Agreement and
the Merger Agreement.
(27) Make and cause to be made all filings, and give and
cause to be given all notices that may be necessary or
desirable on their part under all applicable laws and under
their respective contracts, agreements and commitments in
order to consummate the transactions contemplated under the
Contribution Agreement and the Merger Agreement.
(28) Maintain and cause to be maintained in full force
and effect, all its currently existing insurance and provide
at the closing of the Merger written evidence satisfactory to
the other parties that such insurance continues to be in
effect, that all premiums due have been paid.
Termination
The Merger Agreement may be terminated at any time prior to
the Effective Time, before or after the approval of this
Agreement by the shareholders of ACS and/or Dynamic, by the
mutual consent of the boards of directors of ACS and Dynamic.
In addition, the Merger Agreement may be terminated at any
time:
(1) Upon notice of a material change in, or material addition
to, the Contribution Agreement or Merger Agreement (including
but not limited to the Exhibits to those agreements), if the
effect of such change or addition would, individually or in
the aggregate with other such changes, constitute a material
adverse effect on the notifying party.
(2) If the Merger is not consummated by December 15, 1999, or
the approval of the transactions contemplated by the
Contribution and Merger Agreements by Dynamic's shareholders
is not obtained by December 1, 1999.
(3) If a United States federal or state court of competent
jurisdiction, or United States federal or state governmental,
regulatory or administrative agency or commission issues an
order, decree or ruling, or takes any other action permanently
restraining, enjoining or otherwise prohibiting the Merger .
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(4) If, prior to the Effective Time: (a) there has been a
breach by ACS, Advanced or the Advanced Subsidiaries of any
representation or warranty contained in the Merger Agreement
that would have, or would be reasonably likely to have, a
material adverse effect on the operations of Advanced; or
(b) there has been a breach of any of the covenants or
agreements set forth in the Merger Agreement on the part of
ACS or Advanced, that is not curable or, if curable, is not
cured within thirty (30) days after written notice of such
breach is given by the Company to ACS.
(5) If prior to the Effective Time: (a) there has been a
breach by the Company, the LLC or the Dynamic Subsidiaries of
any representation or warranty contained in the Merger
Agreement which would have or would be reasonably likely to
have a material adverse effect on the operations of the
Company or the LLC, or (b) there has been a breach of any of
the covenants or agreements set forth in the Merger Agreement
on the part of the Company, the LLC or the Dynamic
Subsidiaries, that is not curable or, if curable, is not cured
within thirty (30) days after written notice of such breach is
given by ACS or Advanced to Dynamic.
REGISTRATION RIGHTS AGREEMENT
As part of the Merger and exchange of shares, the Company has
agreed to enter into a Registration Rights Agreement with the ACS
Stockholders upon the closing of the Merger (the "Registration
Rights Agreement"). Under this agreement, the Company will grant
registration rights to the ACS Stockholders covering 50% of the
shares of the Company's common stock to be issued upon consummation
of the Merger. These rights will require the Company to file a
registration statement pursuant to the Securities Act to qualify
25% of the shares issued to the ACS stockholders within 90 days of
closing of the Merger. The Company will file an additional
registration statement on the one year anniversary of the Merger to
qualify the balance of the shares to be registered. In the event
of an adjustment to the number of shares of the Company issued to
the ACS Stockholders pursuant to the Escrow Agreement, as discussed
below, the number of shares of the Company's common stock to be
registered will equal a total of 50% of the shares of the Company's
common stock actually delivered to the ACS Stockholders after
adjustment, less the amount of common stock previously registered.
The form of Registration Rights Agreement is attached as Exhibit
4 to this report, and incorporated by this reference.
ESCROW AGREEMENT
The number of shares of the Company issued to the ACS Stockholders
upon consummation of the Merger will be subject to adjustment based
on the financial performance of the Advanced Subsidiaries and the
Dynamic Subsidiaries for the year ending December 31, 1999. The
Company and the ACS Stockholders will therefore also enter into an
Escrow Agreement upon consummation of the Merger that sets forth
the terms of this adjustment (the "Escrow Agreement").
The adjustment will be based on the projected consolidated earnings
before interest, taxes, depreciation and amortization ("EBITDA") of
$2,400,000 for each of the Dynamic Subsidiaries and the Advanced
Subsidiaries. Under the terms of the Escrow Agreement, concurrent
with the closing of the Merger, the Company will deposit with an
escrow agent four million eighty six thousand seventy three
(4,086,073) shares of the Company's common stock, with duly
executed stock powers
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(collectively, the "Escrow Stock"),
constituting a portion of the Merger Consideration. The escrow
agent will hold and distribute the Escrow Stock in accordance with
the terms and provisions of the Escrow Agreement and the formula
contained therein.
If each of the Dynamic Subsidiaries and the Advanced Subsidiaries
achieves or fails to meet their projected EBITDA, there will be no
adjustment to the number of shares of the Company's common stock
delivered to the ACS Stockholders and the Escrow Stock will be
delivered to the ACS Stockholders. If the Dynamic Subsidiaries
achieves its projected EBITDA and the Advanced Subsidiaries fails
to achieve its projected EBITDA, then the Escrow Stock will be
returned to the Company for cancellation. If the Advanced
Subsidiaries achieves its projected EBITDA and the Dynamic
Subsidiaries fails to achieve its projected EBITDA, then the Escrow
stock will be delivered to the ACS Stockholders and the Company
will issue to the ACS Stockholders an additional 4,180,000 shares
of the Company's common stock.
The terms of the Escrow Agreement are contained in full in the form
of Escrow Agreement attached to this report as Exhibit 5, and
incorporated by this reference.
AMENDMENT TO THE COMPANY'S 1997 INCENTIVE STOCK OPTION PLAN AND
1997 NON-STATUTORY STOCK OPTION PLAN
As a condition of the Merger Agreement, the Company's shareholders
must approve an amendment to the Company's 1997 Incentive Stock
Option Plan and 1997 Non-Statutory Stock Option Plan (the "Stock
Option Plan") to increase the pool of shares of the Company's
common stock available for issuance upon exercise of plan options
to 7,000,000. It is anticipated that following the consummation of
the Merger the newly composed Board will consider granting options
to certain individuals, including James T. Harper, who is
expected to become a Director, and new grants to certain other
Advanced employees. Additionally, Kevin D. Lee and Andrew W.
Miller will each be granted options to purchase 1,000,000 shares of
the Company's stock. The terms of any and all options granted
will be consistent with the Company's existing Stock Option Plan as
approved at the last annual meeting of shareholders in October
1997. The terms of Mr. Lee's and Mr. Miller's stock option grants
are set forth in Exhibits 7 and 11 attached hereto, respectively.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THIS AMENDMENT.
MARKET PRICES AND DIVIDEND INFORMATION
The Common Stock of the Company is traded on the NASDAQ OTC
Bulletin Board under the trading symbol "DYAS". The Common Stock
is also listed on the Frankfurt and Berlin Exchanges in Germany,
under the trading symbol "DYA". As of April 13, 1999, the last
date on which the Common Stock was traded prior to the public
announcement of the signing of the Contribution and Merger
Agreements (through the Company's 8K filing on April 14, 1999), the
high and low sales prices of the Common Stock on the OTC Bulletin
Board were $0.22 per share and $0.13 per share, respectively. On
May 12, 1999, the latest practicable trading day before the
printing of this Proxy Statement, the high and low sales prices of
the Common Stock on the OTC Bulletin Board were $0.11 per share and
$0.11 per share, respectively.
36
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As of December 31, 1998 there were 394 record holders of the
Company's common stock.
The Company has not previously declared or paid any dividends on
its common stock and does not anticipate declaring any dividends in
the foreseeable future.
The high and low sales price of the Common Stock on the OTC
Bulletin Board during the past two years by quarter are as follows:
High Low
------ ------
1999 First Quarter 0.2812 0.1875
1998 Fourth Quarter 0.4200 0.1600
Third Quarter 1.0625 0.1875
Second Quarter 0.8750 0.3437
First Quarter 0.8750 0.7187
1997 Fourth Quarter 2.6300 1.0000
Third Quarter 4.5000 2.3800
Second Quarter 3.9300 2.0600
First Quarter 4.3800 2.6900
SELECTED FINANCIAL INFORMATION CONCERNING THE COMPANY
The selected summary consolidated financial data presented below
for each of the last five fiscal years ended December 31, 1998 have
been derived from the Company's historical financial statements.
This data should be read in conjunction with the consolidated
financial statements and notes thereto of the Company included in
the Annual Report on Form 10-K, filed April 15, 1999 for the fiscal
year ended December 31, 1998, which is incorporated by reference
into this Proxy Statement.
37
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In Thousands Except Per Share Amounts
FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996 1995 1994
Total Revenue 12,499 14,620 1,123 0 0
Operating Income
(loss) (2,143) 826 (959) (618) 0
Income (loss) before
Income Tax Expense and
Extraordinary Item(6,015) (1,502) (1,185) (618) 0
Net income (loss) (6,142) (3,549) (957) (619) 0
Loss per share ($.43) ($.27) ($.11) ($.29) 0.00
Total assets 25,941 32,840 33,954 1,035 0
Current portion of
Notes Payable and
Long-Term Debt 4 109 3,224 220 0
Notes pay and
Long-Term
Debt, Less
Current Portion 17,012 17,348 14,662 0 0
Total Shareholder Equity
(Deficit) 7,262 13,153 13,200 697 0
Dividends Declared
and Paid 0 0 0 0 0
The following unaudited consolidated financial data for fiscal
year-end December 31, 1998 has been derived from the Company's
financial statements. This data should be read in conjunction with
the consolidated financial statements and notes thereto of the
Company included in the Annual Report on Form 10-K, filed April 15,
1999 for the fiscal year ended December 31, 1998, which is
incorporated by reference into this Proxy Statement.
38
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET
December 31, 1998
Pro Forma Consolidated
Dynamic Advanced Adjustments ProForma
--------- --------- --------- ---------
ASSETS
CURRENT ASSETS
Cash $ 478,418 $ 534,620 $ $1,013,038
Accounts receivable
(less allowance
for doubtful accounts
of $2,552,100 and
$581,622 for Dynamic
and Advanced
respectively) 3,741,260 2,332,333 6,073,593
Loans receivable -
related parties 52,500 0 52,500
Other receivables 86,662 8,611 95,273
Income taxes receivable 0 285,165 285,165
Prepaid expenses
and other 109,950 31,040 140,990
Deferred tax benefit 300,000 303,286(2) (300,000) 303,286
--------- --------- --------- ---------
TOTAL CURRENT ASSETS 4,768,790 3,495,055 (300,000) 7,963,845
PROPERTY, PLANT
AND EQUIPMENT 228,733 250,876 479,609
OTHER ASSETS
Deferred debt
issue costs 1,331,307 0(1) (651,402) 679,905
Investment -
restricted stock 17,000 0 17,000
Deferred tax benefit 0 334,905 334,905
Start-up costs
and loan fees 0 130,180 130,180
Other assets 0 44,560 44,560
Goodwill 19,594,775 457,586(2)(19,594,775) 10,071,162
(4) 9,613,576
Deposits 410 0 410
--------- --------- --------- ---------
20,943,492 967,231 (10,632,601) 11,278,122
--------- --------- --------- ---------
$ 25,941,015 $4,713,162 $(10,932,601)$19,721,576
--------- --------- --------- ---------
39
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET (Continued)
December 31, 1998
Pro Forma Consolidated
Dynamic Advanced Adjustments ProForma
--------- --------- ---------- ---------
LIABILITIES & EQUITY
CURRENT LIABILITIES
Accounts payable $ 596,812 $ 350,265 $ $ 947,077
Accrued salaries/
benefits 0 423,254 423,254
Accrued expenses 275,101 22,975 298,076
Accrued interest 791,851 0(1) (739,653) 52,198
Line of credit 0 500,000 500,000
Current portion of
long-term debt
and capital leases 3,978 617,548 621,526
--------- --------- ---------- ---------
TOTAL CURRENT
LIABILITIES 1,667,742 1,914,042 (739,653) 2,842,131
Long-term debt 10,206 8,514 18,720
Convertible notes 17,001,500 0(1)(8,325,000) 8,676,500
Notes payable
to bank 0 4,796,860 4,796,860
--------- --------- ---------- ---------
17,011,706 4,805,374 (8,325,000) 13,492,080
--------- --------- ---------- ---------
TOTAL LIABILITIES 18,679,448 6,719,416 (9,064,653) 16,334,211
STOCKHOLDERS' EQUITY
Common stock $.001
par value: Authorized
- - 25,000,000 shares
Issued and outstanding
14,223,929 shares
(40,859,842 for pro forma) (1) 4,162
Advanced Stock is $.01 par
value Authorized -- 14,224 42,937(3) 22,473 40,859
10,000,000 shares (4) (42,937)
Issued and outstanding
1,391,465* (1) (651,402)
Additional paid-in
capital 18,512,330 2,436,498(2)(22,440,055) 1,882,700
(3) (22,473)
(4) 4,047,802
(1) 7,778,441
Retained earnings
(deficit) (11,264,987) 1,463,806(2) 2,545,280 1,463,806
(4) 941,266
Treasury stock 0 (5,949,495)(4) 5,949,495 0
--------- --------- ---------- ---------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) 7,261,567 (2,006,254) (1,867,948) 3,387,365
--------- --------- ---------- ---------
$25,941,015 $4,713,162 $(10,932,601)$19,721,576
--------- --------- ---------- ---------
* Not including options, warrants and stock appreciation rights
involving the purchase of 1,615,000 shares.
40
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DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
Year ended December 31, 1998
Pro Forma Consolidated
Dynamic Advanced Adjustments ProForma
---------- ---------- ----------- -----------
Management fee
income $12,498,922 $12,417,991 $ $24,916,913
---------- ---------- ----------- -----------
12,498,922 12,417,991 24,916,913
General and
Administrative
expenses 9,845,647 11,112,321 20,957,968
Depreciation and
amortization 2,603,039 380,473(2)(2,545,280) 1,399,590
(5) 961,358
Bad debts 2,193,300 0 2,193,300
---------- ---------- ----------- -----------
14,641,986 11,492,794 (1,583,922) 24,550,858
---------- ---------- ----------- -----------
NET OPERATING
INCOME (LOSS) (2,143,064) 925,197 1,583,922 366,055
OTHER INCOME (EXPENSE)
Interest income 18,006 32,399 50,405
Interest expense (1,946,558) (449,515) (2,396,073)
Miscellaneous income 0 10,320 10,320
Bad debts -
former subsidiaries (2,169,806) 0 (2,169,806)
Disposition of
subsidiaries 256,493 0 256,493
Loss on disposal
of equipment (16,996) 0 (16,996)
Unrealized decline
in investment (12,800) 0 (12,800)
---------- ---------- ----------- -----------
(3,871,661) (406,796) (4,278,457)
---------- ---------- ----------- -----------
NET INCOME (LOSS)
BEFORE INCOME TAXES (6,014,725) 518,401 1,583,922 (3,912,402)
INCOME TAX EXPENSE 127,128 226,825 353,953
---------- ---------- ----------- -----------
NET INCOME (LOSS) $(6,141,853) $ 291,576 $1,583,922 $(4,266,355)
---------- ---------- ----------- -----------
Net income (loss)
per weighted
average share $ (.43) $ (.10)
---------- -----------
Weighted average
number of common
shares used to
compute net income
(loss) per weighted
average share 14,185,573 40,821,486
---------- -----------
DYNAMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The preceding pro forma consolidated condensed balance sheet has
been derived from the balance sheets of the Company and Advanced
Clinical Systems, Inc. and Subsidiaries ("Advanced") at December
31, 1998. The balance sheet assumes that the Company acquired 100%
of the outstanding stock of Advanced on December 31, 1998 in a
reverse acquisition with Advanced as the acquirer and Dynamic as
the acquiree.
(1) Reflects issuance of 4,162,500 shares of stock and 8,325,000
warrants to purchase stock at $1.50 per share prior to December
31, 2000 to reduce convertible debt and interest payable and
adjustments to deferred debt issue costs (1999 transaction)
with resulting gain reflected as a reduction of accumulated
deficit.
41
<Page 41>
(2) Reflects removal of deferred tax asset, goodwill, and
amortization of goodwill of Dynamic as part of purchase
accounting by Advanced.
(3) Reflects issuance of 22,473,413 shares of stock to acquire
Advanced. Advanced shareholders end up with 55% of outstanding
stock.
(4) Reflects adjustments necessary to remove treasury stock,
adjust stock and adjust retained earnings to be that of
Advanced and record goodwill associated with the purchase
transaction of Dynamic.
(5) Reflects amortization of goodwill from this transaction based
on a ten year amortization period.
The preceding pro forma consolidated condensed statement of
operations has been derived from the statements of operations of
the Company and Advanced as of December 31, 1998, and assumes the
acquisitions occurred as of the beginning of the period. Advanced
has a fiscal year end of June. The operations for Advanced consist
of the six (6) months ended June 30, 1998 added to the six (6)
months ended December 31, 1998. The audited net income for
Advanced for its fiscal year ended June 30, 1998 was $698,226.
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of the
Company's common stock held by all persons who, to the knowledge of
the Company, beneficially owned more than five percent (5%) of the
outstanding shares of the Company's common stock as of May 10,
1999, or, in certain instances as described in the footnotes below,
as of a date of the filing by such person of a Schedule 13G with
the Securities and Exchange Commission ("Commission"). According
to rules adopted by the Commission, a person is the "beneficial
owner" of securities if he or she has, or shares, the power to vote
them, or to direct their investment, or has the right to acquire
beneficial ownership of such securities within 60 days. Unless
otherwise indicated, all persons have sole voting and investment
power over all shares beneficially owned.
Class Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
- --------- ------------------- ------------------ --------
Class A Common Vickie T. Lucky 2,370,000 12.9%
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
The Company knows of no other person who is the beneficial owner
of more than five percent of the Company's common stock.
SECURITY OWNERSHIP OF CERTAIN MANAGEMENT OF THE COMPANY
The following table sets forth information, as of May 10, 1999,
concerning the Company's common stock owned by: (i) each director;
(ii) the Chief Executive Officer and the other executive officers
of the Company who earned more than $100,000 during fiscal 1998 and
were serving as executive officers at the end of fiscal 1998; and
(iii) all directors and officers of the Company as a group.
42
<Page 42>
According to rules adopted by the Commission, a person is the
"beneficial owner" of securities if he or she has, or shares, the
power to vote them, or to direct their investment, or has the right
to acquire beneficial ownership of such securities within 60 days.
Unless otherwise indicated, all persons have sole voting and
investment power over all shares beneficially owned.
Class Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class
- --------- ------------------- ------------------ --------
Class A Common Jan Wallace 550,000 2.99%
(President & Director)
6929 East Cheney
Paradise Valley, AZ 85253
Class A Common William H. Means, Jr. 30,000 .16%
(Director)
1613 Jimmie Davis Hwy.
Suite #1&2
Bossier City, LA 71112
Class A Common Grace Sim 20,000 .11%
(Secretary/Treasurer)
6955 E. Caballo Drive,
Paradise Valley, Arizona
85253
Class A Common Elliot Smith 50,000 .27%
(Director)
6955 E. Caballo Drive,
Paradise Valley, Arizona
85253
Class A Common All officers and directors 650,000 3.54%
as a group (4 persons)
ADDITIONAL INFORMATION
INDEPENDENT ACCOUNTANTS
Upon appointment by the Board, Smith & Company, independent public
accountants, audited and reported on the consolidated financial
statements of the Company and its subsidiaries for the fiscal year
ended December 31, 1998. Such financial statements can be found in
the Company's 10K filed on April 15, 1999 and are incorporated by
reference in this Proxy Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission,
are incorporated herein by reference:
43
<Page 43>
(i) the Company's Annual Report on Form 10-K filed with the
Commission on April 15, 1999, for the fiscal year ended
December 31, 1998;
(ii) the Company's Form 8-K dated April 13, 1999 and filed
with the Commission on April 14, 1999
The following documents, attached hereto, are incorporated herein
by reference:
Exhibit Number Description
1 Capital Contribution Agreement
2 Agreement and Plan of Merger
3 Operating Agreement of Advanced-Dynamic, LLC
4 Registration Rights Agreement
5 Escrow Agreement
6 Employment Agreement of Kevin Lee
7 Stock Option Agreement of Kevin Lee
8 Consolidated Financial Statements of Advanced
Clinical Systems, Inc. and Subsidiaries
as of June 30, 1998
9 Amendment to Capital Contribution Agreement
10 Amendment to Agreement and Plan of Merger
11 Stock Option Agreement of Andrew Miller
All reports and definitive proxy or information statements filed by
the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Annual Meeting shall be deemed to be
incorporated by reference into this Proxy Statement from the dates
of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated in this Proxy Statement
shall be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained herein or
in any other subsequently filed document that also is or is deemed
to be incorporated by reference modifies or supersedes such
statement.
A copy of the documents incorporated herein by reference (excluding
exhibits unless such exhibits are specifically incorporated by
reference into the information incorporated herein) that are not
presented with this document or delivered herewith, will be
provided without charge to each person, including any beneficial
owner, to whom a Proxy Statement is delivered, upon oral or written
request of any such person and by first-class mail or other equally
prompt means. Requests should be directed to the Corporate
Secretary at the address set forth below in "Other Matters."
ANNUAL MEETING
The 1999 Annual Meeting of Shareholders of the Company will be held
on June 28, 1999 at 11:00 a.m., at 101 Convention Center Drive,
Suite 1200, Las Vegas, Nevada 89109.
44
<Page 44>
OTHER MATTERS
The Board, as of May 10, 1999 was not aware of any matters to be
presented for action at the Annual Meeting other than the approval
of the Merger Agreement, the modification of the Company's Stock
Option Plan and the election of the directors, and do not intend to
bring any other matters before the Annual Meeting. If any other
matters properly come before the meeting, however, or any
adjournment thereof, the person or persons voting the proxies will
vote in accordance with their best judgment.
A copy of the Company's 1999 Annual Report on Form 10-K,
incorporating the Company's audited financial statements for the
year ended December 31, 1998, as required to be filed with the
Commission will be provided upon written request without charge to
any shareholder whose proxy is being solicited by the Board. The
written request should be directed to the Secretary of the Company,
6955 E. Caballo Drive, Paradise Valley, Arizona 85253.
By Order of the Board of Directors
of Dynamic Associates, Inc.
_______________________________
JAN WALLACE
President and Chief Executive Officer
45
<Page 45>
DYNAMIC ASSOCIATES, INC.
PROXY
FOR ANNUAL MEETING OF THE SHAREHOLDERS OF DYNAMIC ASSOCIATES,INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JAN WALLACE and GRACE SIM, and each
of them, with full power of substitution, as proxies to vote the
shares which the undersigned is entitled to vote at the Annual
Meeting of the Company to be held at 101 Convention Center Drive,
Suite 1200, Las Vegas, Nevada 89109, on June 28, 1999 at 11:00 a.m.
Pacific Standard Time, and at any adjournments thereof.
Please mark your votes as indicated [X]
This proxy when properly signed will be voted in the manner
directed herein by the undersigned shareholder. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 and 3.
1. Election of directors: Jan Wallace. Grace Sim and Elliot Smith.
FOR Election NOT FOR Election
of directors of directors
[_] [_]
Except vote withheld from following nominee(s) listed above.
___________________________ ________________________
2. Merger by and between Dynamic Acquisition Corporation and ACS2,
Inc.
FOR Merger NOT FOR Merger
[_] [_]
3. Amendment of the Company's Stock Option Plan to increase the
maximum aggregate number of shares which may be optioned under
these Plans to 7,000,000 in conformity with the requirements of the
Merger Agreement
FOR Amendment NOT FOR Amendment
[_] [_]
3. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting.
IMPORTANT - PLEASE SIGN AND RETURN PROMPTLY. When shares are held
by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name
by President or other authorized officer. If a partnership, please
sign in partnership name by an authorized person.
Signature(s) Dated: ________________, 1999
___________________________ ___________________________
46
<Page 46>
AMENDMENT TO CAPITAL CONTRIBUTION AGREEMENT
THIS AMENDMENT TO CAPITAL CONTRIBUTION AGREEMENT is entered
into as of the _____ day of ____________, 1999 by and among ACS2,
INC., a Delaware corporation ("ACS2"), ADVANCED CLINICAL SYSTEMS,
INC., a Delaware corporation ("Advanced"), DYNAMIC ASSOCIATES,
INC., a Nevada corporation ("Dynamic"), and ADVANCED-DYNAMIC, LLC,
a Nevada limited liability company (the "LLC").
WHEREAS, the parties have entered into that certain Capital
Contribution Agreement as of March 30, 1999 (the "Capital
Contribution Agreement") regarding the contribution of the capital
stock of Advanced and the subsidiaries of Dynamic into the LLC
pending a contemplated merger of ACS2 with and into Dynamic
Acquisition Corporation (the "Merger"); and
WHEREAS, the parties desire to amend the Capital Contribution
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in the Capital Contribution Agreement and
herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
1. The phrase "and wholly-owned subsidiary of ACS2" is
hereby deleted from the opening paragraph of the Capital
Contribution Agreement. Likewise, Dynamic and the LLC
each hereby acknowledge that all statements made in the
Capital Contribution Agreement pertaining to or related
to the ownership of Advanced common stock are subject to
completion of the recapitalization of Advanced which,
pursuant to that certain Agreement and Plan of Merger
dated as of March 30, 1999, is to be completed on or
prior to the Merger. For example, but without
limitation, the obligations imposed pursuant to Section
6.1 of the Capital Contribution Agreement would be
subject to the caveat of completing such
recapitalization.
2. The word "All" is hereby deleted and the phrase
"representing, in the aggregate, at least ninety percent
(90%) of the underlying shares of common stock of such
Warrants, Options and SARs" is hereby inserted after the
parenthetical in Section 1.7 of the Capital Contribution
Agreement. In addition, the phrase "at or prior to the
Closing of the Merger" will be inserted after the word
"canceled" in Section 1.7 of the Capital Contribution
Agreement.
3. The phrase "whose fees and expenses shall be paid by
Dynamic" is hereby deleted from Section 5.12 of the
Capital Contribution Agreement.
4. The phrase "other than against or by former officers,
directors and related parties" is hereby deleted from
Section 6.4(k) of the Capital Contribution Agreement and
the following substituted in its stead: ". . .; provided,
however, that the parties hereto acknowledge and consent
to efforts by Dynamic, alone or with the financial
<PAGE>
assistance of the holders of the Dynamic Secured Notes
[on behalf of Dynamic], to settle outstanding disputes
with former officers and directors of Dynamic and its
subsidiaries as more fully described in Section 7.1(7) of
the Merger Agreement."
5. The following sentence will be added to the end of
Section 6.14(e) of the Capital Contribution Agreement:
"Notwithstanding the foregoing, Advanced's failure to
deliver the requisite number of cancellation agreements
at or prior to the Closing of the Merger pursuant to
Section 1.7 will permit Dynamic to terminate this
Agreement pursuant to Section 8.2."
6. Section 6.14(f) of the Capital Contribution Agreement is
hereby amended to insert the following phrase after the
phrase "certifying that": ", subject to any caveats which
may be set forth in such certificate and which are
acceptable to the receiving party(ies),".
7. Section 6.14(g) of the Capital Contribution Agreement is
hereby amended to insert the following phrase after the
word "deliver": ", at the time of Closing of the
Merger,".
Other than as set forth in this Amendment to Capital Contribution
Agreement, the Capital Contribution Agreement remains in full force
and effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment
to Capital Contribution Agreement as of the date set forth above.
"ACS2"
ACS2, INC.
a Delaware corporation
By: ___________________________
Title: ___________________________
"ADVANCED"
ADVANCED CLINICAL SYSTEMS, INC.
a Delaware corporation
By: ___________________________
Title: ___________________________
"DYNAMIC"
DYNAMIC ASSOCIATES, INC.
a Nevada corporation
By: ___________________________
Title: ___________________________
"LLC"
ADVANCED-DYNAMIC, LLC
a Nevada limited liability company
By: ___________________________
Title: ___________________________
-3-
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER is entered into
as of the _____ day of __________, 1999 by and among DYNAMIC
ASSOCIATES, INC., a Nevada corporation ("Dynamic"), DYNAMIC
ACQUISITION CORPORATION, a Nevada corporation ("DAC"), ACS2, INC.,
a Delaware corporation ("ACS2"), and ADVANCED CLINICAL SYSTEMS,
INC., a Delaware corporation ("Advanced").
WHEREAS, the parties have entered into that certain Agreement
and Plan of Merger as of March 30, 1999 (the "Merger Agreement")
regarding the contemplated merger of ACS2 with and into DAC (the
"Merger"); and
WHEREAS, the parties desire to amend the Merger Agreement as
set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained in the Merger Agreement and herein, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally
bound hereby, agree as follows:
1. The first sentence of Section 1.3 of the Merger Agreement
is hereby amended by deleting the phrase, "but in no
event more than ten (10) business days" and substituting
in its stead the following: "as soon as reasonably
possible".
2. The last two (2) sentences of Section 2.2(b) of the
Merger Agreement are hereby deleted and the following
substituted in its stead: "Any fee payable to Genesis in
cash or cash equivalents which is approved by Dynamic and
ACS2 will be payable one-half (1/2) by Dynamic and one-
half (1/2) by ACS2, and such fee shall not effect in any
way the Merger Consideration. In the event the Genesis
Warrant is not canceled or Genesis is or becomes entitled
to any Dynamic Common Stock or any security convertible
into Dynamic Common Stock, the Merger Consideration shall
be increased by that number of shares of Dynamic Common
Stock equal to fifty-five percent (55%) of the number of
shares of Dynamic Common Stock to which Genesis is or may
become entitled."
3. Dynamic and the LLC each hereby acknowledge that all
statements made in the Merger Agreement pertaining to or
related to the ownership of Advanced Common Stock prior
to consummation of the Merger are subject to completion
of the recapitalization of Advanced which, pursuant to
the Merger Agreement, is to be completed on or prior to
the Merger. For example, but without limitation, the
obligations imposed pursuant to Section 6.1 of the Merger
Agreement restricting the issuance and delivery of
securities would be subject to the caveat of completing
such recapitalization.
<PAGE>
4. Section 6.4(11) of the Merger Agreement is hereby amended
by adding the following phrase at the end of such clause:
". . .; provided, however, that the parties hereto
acknowledge and consent to efforts by holders of the
Dynamic Secured Notes (the"Noteholders") to settle
outstanding disputes with former officers and directors
of Dynamic and its subsidiaries as more fully described
in Section 7.1(7)."
5. The first sentence of Section 6.5(1) of the Merger
Agreement is hereby amended by deleting the phrase "ten
(10)" and inserting in its stead the phrase "fifty (50)".
6. There shall be added to the Merger Agreement a new
Section 6.15(9), which will read as follows: "(9) Dynamic
will deliver to Andrew W. Miller a Stock Option Agreement
in the form attached hereto as Exhibit 6.15(9)."
Further, there will be attached to the Merger Agreement,
and thereby incorporated therein by reference, said
Exhibit 6.15(9), a copy of which exhibit is attached to
this Amendment.
7. Section 7.1(7) of the Merger Agreement is hereby deleted
in its entirety and the following substituted in its
stead: "Dynamic shall have used its best efforts to
settle any outstanding claims, liabilities, actions or
lawsuits against or by former officers, directors,
stockholders or related parties of Dynamic or its
subsidiaries (collectively, the "Opposing Parties") to
the satisfaction of ACS2. Failure to achieve such a
settlement will not be deemed a breach under this
Agreement. Dynamic will keep ACS2 fully informed as to
the status of such settlement negotiations. Any such
settlement shall include a written agreement, in form
satisfactory to ACS2 in its sole discretion, evidencing
that neither Dynamic, ACS2, Advanced, DAC nor any
director, officer, employee, agent, affiliate or
representative of any such corporation has any
obligations of any kind whatsoever to the Opposing
Parties and each is fully released from any pre-existing
obligations and claims. Subject to the foregoing
sentence, Dynamic will have full authority to settle such
claims as it deems appropriate. ACS2 hereby agrees that
Dynamic may enter into an agreement with the Noteholders
whereby the Noteholders agree to bear the costs of
settlement negotiations and any related litigation,
including but not limited to the costs of litigating and
defending counterclaims. In consideration for the
Noteholders' financial assistance, Dynamic may grant the
Noteholders the right to receive settlement proceeds from
the Opposing Parties, if any, up to an amount agreeable
to Dynamic or ACS2. In no event will Dynamic or any
affiliate pay the Noteholders any consideration, in the
form of cash, securities or otherwise, for the settlement
efforts contemplated hereunder."
8. Section 7.1(11) of the Merger Agreement is hereby deleted
in its entirety and the following substituted in its
stead: "ACS shall have acquired all of the outstanding
shares of Common Stock of Advanced and shall have
delivered fully executed
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<PAGE>
cancellation agreements with the holders of outstanding Advanced
Options, Warrants and SARs representing at least ninety percent
(90%) of the shares underlying all outstanding Advanced Options,
Warrants and SARs."
9. Section 7.3(3) of the Merger Agreement is hereby amended
by deleting the number "6,000,000" and substituting in
its stead the number "7,000,000".
Other than as set forth in this Amendment to Merger Agreement,
the Merger Agreement remains in full force and effect.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment
to Merger Agreement as of the date set forth above.
"DYNAMIC"
DYNAMIC ASSOCIATES, INC.
a Nevada corporation
By: ___________________________
Title: ___________________________
"DAC"
DYNAMIC ACQUISITION CORPORATION
a Nevada corporation
By: ___________________________
Title: ___________________________
"ACS2"
ACS2, INC.
a Delaware corporation
By: ___________________________
Title: ___________________________
"ADVANCED"
ADVANCED CLINICAL SYSTEMS, INC.
a Delaware corporation
By: ___________________________
Title: ___________________________
-4-
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
NON-STATUTORY STOCK OPTION AGREEMENT
THIS NON-STATUTORY STOCK OPTION AGREEMENT is made as of the
____ day of _____________, 1999 by and between DYNAMIC ASSOCIATES,
INC., a Nevada corporation (hereinafter called "Company"), and
ANDREW W. MILLER (hereinafter called "Optionee").
R E C I T A L S
A. The Board of Directors of the Company has adopted the
Company's 1997 Stock Option Plan (the "Plan") for the purpose of
attracting and retaining the services of selected key employees
(including officers and employee directors) and others
(collectively, "Eligible Persons") who contribute to the financial
success of the Company or its subsidiary corporations.
B. Optionee is an Eligible Person and this Agreement is
executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the Company's grant of a stock option
to the Optionee.
C. The granted option is not intended to be an incentive
stock option within the meaning of Section 422 of the Internal
Revenue Code, but is rather a non-statutory option.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and
conditions set forth in this Agreement, there is hereby granted to
Optionee, as of the date of this Agreement (the "Grant Date"), a
stock option to purchase up to 1,000,000 shares of the Company's
Common Stock (the "Optioned Shares") from time to time during the
option term at the option price of $______ per share.
2. Plan. The options granted hereunder are subject to the
terms and conditions of the Plan. In the event of any conflict
between this Agreement and the Plan, the provisions of the Plan
shall control. Optionee acknowledges receipt of a copy of the Plan
and hereby accepts this option subject to the terms and conditions
of the Plan, except as set forth above. Optionee agrees to accept
as binding, conclusive and final all decisions or interpretations
of the Board upon any questions arising under the Plan.
<PAGE>
3. Option Term. This option shall have a maximum term of
five (5) years measured from the Grant Date and shall accordingly
expire at the close of business on _______________, 2004 (the
"Expiration Date"), unless sooner terminated in accordance with
Paragraph 6.
4. Option Nontransferable; Exception. This option shall be
neither transferable nor assignable by Optionee, either voluntarily
or involuntarily, other than by will or by the laws of descent and
distribution and may be exercised, during Optionee's lifetime, only
by Optionee.
5. Dates of Exercise. The option will vest and become
exercisable with respect to one-third (1/3) of the Option Shares
upon the date hereof with respect to one-third (1/3) of the Option
Shares upon the first (1st) anniversary of the date hereof; and with
respect to the remaining one-third (1/3) of the Option Shares upon
the second (2nd) anniversary of the date hereof. Once exercisable,
options shall remain so exercisable until the expiration or sooner
termination of the option term under Paragraph 6 of this Agreement.
In no event, however, shall this option be exercisable for any
fractional shares.
6. Accelerated Termination of Option Term. The option term
specified in Paragraph 3 shall terminate (and this option shall
cease to be exercisable) prior to the Expiration Date should one of
the following provisions become applicable:
(a) Except as otherwise provided in subparagraphs (b) or (c)
below, should Optionee cease to be a director of the Company
at any time before __________, 2001, then the period for exercising
any then-vested portion of this option shall be reduced to a three
(3)-month period commencing with the date of such cessation of
director status. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding
(b) Should Optionee die while this option is
outstanding, then the executors or administrators of Optionee's
estate or Optionee's heirs or legatees (as the case may be) shall
have the right to exercise this option for the number of shares (if
any) for which the option is exercisable on the date of the
Optionee's death. Such right shall lapse and this option shall
cease to be exercisable upon the earlier of (i) six (6) months from
the date of the Optionee's death or (ii) the Expiration Date.
(c) Notwithstanding clause (a) above, should Optionee's
status as a director be terminated for cause or should Optionee
make or attempt to make any unauthorized use or disclosure of the
confidential information or trade secrets of the Company or any
subsidiary corporations, then in any such event this option shall
terminate and cease to be exercisable immediately upon such
termination of director status or such unauthorized disclosure or
use of confidential or secret information or attempt thereat.
7. Adjustment in Option Shares.
(a) In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock split, stock
dividend, combination of shares, or other change affecting the
outstanding Common Stock as a class without receipt of
consideration (as set forth in the Plan),
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<PAGE>
then appropriate adjustments will be made to (i) the total number
of Optioned Shares subject to this option and (ii) the option price
payable per share in order to reflect such change and thereby
preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger
or other business combination, then this option, if outstanding
under the Plan immediately after such merger or other business
combination shall be appropriately adjusted to apply and pertain to
the number and class of securities to which Optionee immediately
prior to such merger or other business combination would have been
entitled to receive in the consummation of such merger or other
business combination.
8. Special Adjustments to Option.
(a) In the event of one or more of the following
transactions (a "Corporate Transaction"):
(i) a merger or acquisition in which the Company
is not the surviving entity, except for a transaction the principal
purpose of which is to change the name or state of the
incorporation of the Company;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company; or
(iii) any other corporate reorganization or
business combination in which fifty percent (50%) or more of the
Company's outstanding voting stock is transferred; or exchanged
through merger, to different holders in a single transaction or a
series of related transactions;
then this option shall continue to be exercisable, and if not fully
exercised prior to the Corporate Transaction, will be assumed by
the successor corporation or parent thereof. If so assumed, this
option shall be appropriately adjusted to apply and pertain to the
number and class of securities to which Optionee immediately prior
to the Corporation Transaction would have been entitled to receive
in the consummation of such Corporation Transaction. The Company
shall provide Optionee with at least thirty (30) days prior written
notice of the specified date for the Corporate Transaction.
(b) This Agreement shall not in any way affect the right
of the Company to make changes in its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer
all or any part of its business or assets.
9. Privilege of Stock Ownership. The holder of this option
shall not have any of the rights of a shareholder with respect to
the Optioned Shares until such individual shall have exercised the
option and paid the option price in accordance with this Agreement.
3
<PAGE>
10. Manner of Exercising Option.
(a) In order to exercise this option with respect to all
or any part of the Optioned Shares for which this option is at the
time exercisable, Optionee (or in the case of exercise after
Optionee's death, Optionee's executor, administrator, heir or
legatee, as the case may be) must take the following actions:
(i) Execute and deliver to the Secretary of the
Company a stock purchase agreement in substantially the form of
Exhibit A to this Agreement (the "Purchase Agreement");
(ii) Pay the aggregate option price for the
purchased shares in cash, Company common stock, one-year promissory
notes bearing six percent (6%) annual interest, any combination
thereof, or such other form of consideration as permitted under the
Plan.
(b) This option shall be deemed to have been exercised
with respect to the number of Optioned Shares specified in the
Purchase Agreement at such time as the executed Purchase Agreement
for such shares shall have been delivered to the Company and all
other conditions of this Section have been fulfilled. Payment of
the option price shall immediately become due and shall accompany
the Purchase Agreement. As soon thereafter as practical, the
Company shall mail or deliver to Optionee or to the other person or
persons exercising this option a certificate or certificates
representing the shares so purchased and paid for.
11. Compliance With Laws and Regulations.
(a) The exercise of this option and the issuance of
Optioned Shares upon such exercise shall be subject to compliance
by the Company and Optionee with all applicable requirements of law
relating thereto and with all applicable regulations of any stock
exchange on which shares of the Company's Common Stock may be
listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option,
Optionee shall execute and deliver to the Company such
representations in writing as may be reasonably requested by the
Company in order for it to comply with the applicable requirements
of federal and state securities laws.
12. Successors and Assigns. Except to the extent otherwise
provided in Paragraph 4 or 8(b), the provisions of this Agreement
shall inure to the benefit of, and be binding upon, the successors,
administrators, heirs, legal representatives and assigns of
Optionee and the successors and assigns of the Company.
4
<PAGE>
13. Liability of Company.
(a) If the Optioned Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock
which may without shareholder approval be issued under the Plan,
then this option shall be void with respect to such excess shares
unless shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Section 18 of the
Plan.
(b) The inability of the Company to obtain approval from
any regulatory body having authority deemed by the Company to be
necessary to the lawful issuance and sale of any Common Stock
pursuant to this option without the imposition of requirements
unacceptable to the Company in its reasonable discretion shall
relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval
shall not have been obtained. The Company, however, shall use its
best efforts to obtain all such approvals.
14. No Employment Contract. Except to the extent the terms
of any written employment contract between the Company and Optionee
may expressly provide otherwise, the Company (or any subsidiary
corporation of the Company employing Optionee) shall be under no
obligation to employ or continue the employment of Optionee for any
period of specific duration and may terminate Optionee's status as
an employee at any time, with or without cause.
15. Notices. Any notice required to be given or delivered to
the Company under the terms of this Agreement shall be in writing
and addressed to the Company in care of its Secretary at its
corporate offices. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on this Agreement
(as such address may be changed from time to time upon notice by
Optionee). All notices shall be deemed to have been given or
delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
16. Loans or Guarantees. The Company may, in its absolute
discretion and without any obligation to do so, assist Optionee in
the exercise of this option by (i) authorizing the extension of a
loan to Optionee from the Company, (ii) permitting Optionee to pay
the option price for the purchased Common Stock in installments
over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan,
installment method of payment or guarantee (including the interest
rate, the collateral requirements and terms of repayment) shall be
established by the Company in its sole discretion.
17. Construction. This Agreement and the option evidenced
hereby are made and granted pursuant to the Plan and, subject to
express provisions to the contrary contained herein, are in all
respects limited by and subject to the express terms and provisions
of the Plan. All decisions of the Company with respect to any
question or issue arising under the Plan or this Agreement shall be
conclusive and binding on all persons having an interest in this
option.
18. Governing Law. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the
State of Nevada.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Non-statutory
Stock Option Agreement to be executed in duplicate on its behalf by
its duly authorized officer and Optionee has also executed this
Agreement in duplicate, all as of the day and year indicated above.
DYNAMIC ASSOCIATES, INC.,
a Nevada corporation
By: ___________________________
Title: ___________________________
____________________________________
ANDREW W. MILLER, Optionee
Address:___________________________
___________________________
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